Many traders are getting liquidated, and there is widespread panic in the market. But what is the real reason behind this dump? Are whales manipulating prices for long-term gain?Â
We need to begin from the real start of all problems – inflation. After the COVID-19 pandemic, the global economy was in crisis. Is this dump going to last longer than we thought?
Fed’s Rate Cuts: A Risky Move Toward Recession
Crypto, the Stock Market, Housing, etc, crashed too much, similar to the 2008 financial crisis. The US government announced the economic stimulus in 2020, and continued the policy in 2021 too. As a result, the core inflation jumped 2131% in just 2 years.
The core inflation did fall a bit but not to the pre-COVID levels. The Federal Reserve uses the CPI data to measure inflation and announce its interest rates. Feds want inflation to be at 2%, and when inflation is above this figure, Feds increase the interest rate.
But the Feds could not take any action when inflation was rising from 2020 to 2022. Later in 2022, the Feds started cutting interest rates. Even though this helped to lower the inflation, this plan was not effective and efficient. So, the Fed’s rate cuts are dragging the US to a recession, and still, the inflation rate is above 2%.
10 Year Bonds
On one side, inflation is rising. At the same time, the rate cuts are not effective. Both led to a phenomenal rise in the 10-year bond yield.
When the Fed raises rates, long-term yields typically rise as investors demand higher returns to offset inflation. But the 10 10-year bond yield started falling even when the Feds kept the rates steady. This has massive implications for corporate investors. The dollar is losing its value aggressively, and there are no safe ways to offset inflation.
Trump Becomes President
When Trump became president, he was quite vocal about making the US great again. There are many macroeconomic dimensions, but to keep it simple, we can point to three factors:
Supremacy of the Dollar.
Growth of the US.
Capture new-age money to the US.
Also, Trump wants the US to become the crypto capital of the world.
Debt Crisis
The US has $7 Trillion in debt (treasury securities) that needs to be paid by September. The total debt is more than $35 Trillion. There are two options:
Generate more revenue (by increasing taxes) – this is what the US is doing by raising tariffs.
Refinance the debt – the US will issue new treasury bonds to refinance the debt.
So, the tariff issue is affecting the global economy. What about refinancing the debt? Refinancing works well when there is a high demand for securities. So, the US wants to generate high demand for securities and treasury bonds. However, it is not happening because of the fear of inflation.
The easy way is to offer more interest for the treasury bonds. But we are talking about $7 Trillion here – even raising 1% would incur $70 billion in interest hike alone. So, what is the difficult way? Lower the interest rates. But how? Generate fear in the market. The ANSWER: Thank the stock market (and the crypto market). What will happen if the Stock market goes down? People will be scared. Institutions will be facing the threat of liquidation – so they will have to sell too. All of this results in a stock market dump (and crypto, too).
But institutions have to park their money somewhere, right? The safest option would be the treasury bonds. The more people flock to treasury bonds, the lower the interest rate of such bonds. This will lead to two things:
The US will be able to refinance $7 trillion debt easily.
The US will have to pay less interest on the new debt.
Such a clever idea.
What will be the fate of crypto?
There will be rate cuts soon. We will need to observe one indicator – the 10-year Yield.
There can be 4 scenarios:
4% – Most likely – This will give relief rallies across the board.
3.2% – Can happen – The market can start pumping for 5-6 months.
3% – Low probability to happen in the short term – But if it happens, there will be a massive bull run.
Anything below 2% – Not possible in the short term – Markets may tank to covid levels or around that. It will be a generational buying opportunity.
This situation is short-term bearish and long-term bullish. To ease the pain in the stock market, the US has announced support for Elon Musk and Tesla publicly. We can expect some relief rallies in the meantime to liquidate Bitcoin shorts, too.
This is the big picture you need to see. Most of these alts will recover with time. If you panic-sell, it will make the losses permanent. Can all of them reach their ATH? Many might not, they need to survive first. So, recheck your convictions, and if you do not have strong conviction, exiting the position might be a good idea. However, if you believe in the project, and if the project has been delivering, then hodl.
Good things come to those who are patient!
Disclaimer
The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted risk tolerance levels of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses you may incur due to any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments, so please do your due diligence. Copyright Altcoin Buzz Pte Ltd.
This articles is written by : Nermeen Nabil Khear Abdelmalak
All rights reserved to : USAGOLDMIES . www.usagoldmines.com
You can Enjoy surfing our website categories and read more content in many fields you may like .
Why USAGoldMines ?
USAGoldMines is a comprehensive website offering the latest in financial, crypto, and technical news. With specialized sections for each category, it provides readers with up-to-date market insights, investment trends, and technological advancements, making it a valuable resource for investors and enthusiasts in the fast-paced financial world.
By Nermeen Nabil Khear 
