Source — Savvy Finance — YouTube
You may have noticed a disproportionate number of people on your social media talking about investing and the economy.
Everyone’s an expert or has “Investor” in their bio.
More people are interested in investing today than I can ever remember before. With new financial tools at your fingertips and the rise of the digital era, it’s now possible for anyone to invest in any digital asset almost immediately at the ground level.
Before the stampede arrives.
You know, it’s what Venture Capitalists get to do, invest money into businesses that end up being juggernauts, except they do it before the public gets access.
That’s all changed now.
Cryptocurrency has created a level playing field.
A mature internet has given rise to several finance experts who can navigate and make sense of the chaos.
Lyn Alden, a macro analyst, is one of those people.
Alden has a brain the size of a planet. She’s knowledgeable and well-known for her ability to explain complex financial concepts clearly and easily understood.
She explains the crypto market simply by giving her latest thoughts and what you can expect to see. And she has a passion for helping you learn about investing, which is evident through the many articles, videos and interviews she shares.
In a recent interview, Lynn Alden said that the impressive rally in the cryptocurrency market, specifically with Bitcoin, may result from pent-up demand due to improved liquidity conditions.
Alden thinks that people are investing more in Bitcoin because they have more money to invest, but this trend may only last for a while.
She says some investors are concerned about a bounce in meme and unprofitable stocks this year and suggests that some gains may be given back or consolidated for some time.
A meme stock is a stock that gains popularity and significant investor attention due to social media, online forums, and viral online content.
It includes assets like:
98% of NFTs
DOGE Coin (Elon’s Tweets)
GameStop’s community propping up the share price
Alden says these types of assets significantly increased in value due to the hype generated by online communities rather than any underlying fundamentals of the stock or the company it represents.
They are often associated with retail investors who buy and sell assets based on discussions on social media platforms like Reddit or Twitter.
Alden believes that the macro environment is set for more impressive rallies in the cryptocurrency market, but whether or not it will continue to rise will depend on the actions of the U.S. Federal Reserve.
She points out that Bitcoin is historically highly correlated with global liquidity indicators and is one of the purest liquidity correlations in the market.
If Bitcoins price increases, it directly indicates more liquidity available.
Lyn Alden — Source
“The recent impressive rally in the cryptocurrency market, specifically with Bitcoin, may result from pent-up demand due to improved liquidity conditions.
Some investors are concerned about a bounce in meme and unprofitable stocks this year.
Some gains may be given back or consolidated for a while, and the macro environment is suitable for more impressive rallies, but whether it will continue depends on the actions of the U.S. Federal Reserve.
It’s important to remember that Bitcoin is historically highly correlated with global liquidity indicators and is one of the purest liquidity correlations out there.”
Alden is saying that Bitcoin’s recent rally in price might be due to an improvement in liquidity conditions, meaning that more capital is available for investment.
She says Bitcoin strongly correlates with global liquidity indicators, which means that the amount of money available for investment heavily influences its price.
Unlike other assets whose value is affected by factors like earnings, the value of Bitcoin is determined by liquidity conditions and the Federal Reserve’s stance on interest rates.
Inflation Is Falling, but Much Is Resting on the Fed Monetary Policy Meeting in March 2023.
If interest rates go up, Crypto comes down.
It’s that simple.
I’ve given Jerome Powell, the Federal Reserve chairman, a heck of a lot of air time recently, and that’s mainly because the entire crypto market is waiting with bated breath to see if the Fed will increase interest rates.
Inflation in the U.S. had fallen from 7.2 % in November 2022 to a much healthier 6.5% in December 2022, suggesting that the federal reserve’s aggressive hiking of interest rates since last March is having the desired effect.
6.5% inflation is still in a different solar system to 2%, a rate generally accepted by most central banks. But it shows that the Federal Reserve’s aggressive hiking of interest rates has the desired effect.
It’s all now leading to speculation that Fed Chairman Jerome Powell could be ready to start easing off on hiking rates or even pause altogether.
Which the Crypto markets have responded to positively.
Given his tone previously, this is unlikely.
Powell has insisted that he’s determined to keep rates high for as long as needed to “get the job done on inflation.”
Persistent High Inflation is a much more severe threat to economic well-being in the long run than some supposedly short-term pain of interest rates increases.
Powell’s stance on interest rates looks to be set out for the long hall and most of 2023, highlighting Lyn Aldin’s views that much of the short-term price action of Crypto is resting on the Fed.
Jerome Powell — Source
“While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses.
These are the unfortunate costs of reducing inflation.
But a failure to restore price stability would mean far greater pain.
Longer-term inflation expectations remain well anchored.
But that is not grounds for complacency, with inflation having run well above our goal for some time.”
Final Thoughts
If you have a long-term time horizon and believe in Bitcoin’s value, timing the market is unimportant.
These fluctuations are just little bumps in the road.
I agree with Lyn Alden that we may see the starting point of a pivot in liquidity. But there is just too much resting on the Fed, and there’s no accurate indication of what they’ll do.
They can increase interest rates from 4.5% to the proposed terminal rate of 5.1% in 2023, and when they did this last time, it caused havoc for the entire crypto market.
You can see in the chart below showing the cryptocurrency market cap that from the moment the Fed announced plans to increase the interest rates to when they did increase it by 0.5%, the entire market declined, wiping away nearly $1.2 Trillion.
Guy Turner, one of Youtube’s most popular crypto commentators, believes it was less about pent-up retail investors waiting on the sidelines and more about institutional investors looking to take advantage of an investment opportunity to diversify.
He says retail investors could not have made that big a difference to the price of Bitcoin.
Guy Turner:
“The recent rally in crypto prices can be attributed to the unexpected good news on inflation, with institutional investors taking advantage of the opportunity to diversify their portfolio even amidst a bear market.”
Whether Guy Turner or Lyn Aldin are correct remains to be seen.
If you believe in the digital asset space, the tried and true way of Dollar Costing Averaging and making investments at regular intervals will help you weather the volatility.
If not, sometimes the best thing to do is do nothing and watch things play out.
This article is for informational purposes only; it should not be considered financial, tax or legal advice. You can consult a financial professional before making any significant financial decisions.
This article is for informational purposes only; it should not be considered financial, tax or legal advice. You can consult a financial professional before making any significant financial decisions.