It does not take a genius mind to realize, that we are approaching a very serious global financial crisis. There are many fundamental and technical factors contributing to current market conditions.
In this post, we will touch on the key points to describe our opinion.
Let's dive right into it.
- The time frame of the market cycles.
The global economy has ended its vertical bull run. The steep growth affected the global financial markets, real estate markets, and crypto markets. The COVID-19 pandemic extended this cycle with the action of the US government and the Fed contributing to the anomaly of the market conditions.
Usually, the cycles in the economy repeat themselves every 12-15 years. The savings and loans crisis of 1992, the mortgage crisis of 2007, and now we are at the beginning of the new global crisis. From the timing standpoint, it is just about time.
- The Fed intervention and the money printing.
In the wake of the COVID pandemic, many businesses were forced to shut down, creating an unprecedented amount of unemployed people. In order to avoid the population going completely broke, the US government initiated the lifeline for unemployed individuals, by adding $600 per week to the unemployment benefits. It is $2400 per month per unemployed person in a household plus regular unemployment claim benefits. As a result, some families were paid much more in unemployment benefits than the income they earned during their employment. It is a great motivation to stay home and collect unemployment instead of trying to find a job. For many families, the government also paid $1200 per person in their household as a one-time financial help. At the same time, the Fed reduced the rate to 0% which created a great deal of demand for super cheap loans.
As a result, we have an extremely overbought financial market, a super bloated real estate market, the crazy influx of capital into the crypto market, and all-time high inflation.
- Chain of supply and Geopolitical Situation
As a result of the pandemic, many manufacturing facilities were ordered to be shut down in China, which resulted in a painful disruption in the supply chain. The disruption in semiconductors manufacturing has affected every single industry and manufacturing of home appliances, automobiles, sophisticated electronic equipment, and so on. It is negatively affected supply and created enormous demand for the things we have been taking for granted.
With the record high inflation, the prices of the energy sector went out of control. The major contributor to this energy crisis in the US is the government’s decision to stop drilling activity on federal land. In Europe, the war between Russia and Ukraine contributed to the natural gas spot prices reaching an all-time high. It added pressure to the down-trending economy in Europe. In Asia, China has Evergrande the biggest real estate development company defaulting as a result of overextending its debts it is estimated to be indebted for a few hundred billion dollars. China’s real estate bubble is about to burst as well. The geopolitical situation with Taiwan is adding fuel to the fire. The US is running around the world antagonizing more nations and making them into adversaries.
Add all of these variables to the equation; it is a perfect storm for a global economy's downturn, crisis, and recession.
The biggest question is what to do and how to withstand the challenges we are facing.
As everybody knows, a crisis always presents an opportunity. And we see this opportunity in the crypto market. The crypto market is still in the infancy stage. It is yet to be completely engaged and adopted by institutional investors. That is why it presents a great opportunity.
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