Crypto And Stock Market Doom Loop: Can It Be Avoided?
Here is the chart:
Now bitcoin might zoom but if it does you will have to ask “what went right?” It will take something remarkable to go awry to turn this dump around because what is really going on is:
The Nasdaq is mid-crash because the Fed is tightening:
So in the near term, the pressure is on. Somewhere on that tightening trajectory the Fed is going to stop.
So will the fall in stocks and crypto. Everyone says how brilliant their stocks or crypto are and that is why they are rising. They sing the praises of clever entrepreneurs and everything is genius and disruptive. The truth is money supply is inflation nominal values and when that money flows in reverse all of a sudden the same companies and people are rubbish because the prices of their projects deflates.
As such, the call on this bear market crash is, where is the bottom? It’s easy to say $10,000-20,000 on bitcoin but it’s harder with stocks because so many are valued nonsensically high. A cigarette company in the U.K. is worth 50% of sales, the U.S. equivalent 500% of sales. This is what makes it hard to spot the U.S. market bottom because valuations have become so unanchored. This hard to justify valuation environment can last even through a crash, even if the numbers were cut in half and the economy regulators have a tight grip on what makes the market go up or down.
They will use “trickle down” definition to check inflation in the same way as they used “trickle down stimulus” to dig out of previous crisis. It can be too sharp or too deep because it can’t hurt the tax base that needs to bail out fiscal budget deficits and finance huge public debt liability positions.
If nature was left to take its course, we would get one of the deepest crashes ever, rivalling 1929 and the 2001 dotcom debacle. However, like so much recent market action it will be regulated to stave off a vicious negative feedback doom loop.
We should hope!