It can be said that crypto markets (and non) are linked together by the concept of liquidity.
One has to understand past events to know the probability of what will happen to certain future events.
Coronavirus disease (COVID-19) was an event that accelerated a process already underway, i.e. after many years of economic growth, the market began to slow down. This became evident both towards the end of 2018 and throughout 2019.
In December 2018 there was a stock market crisis that was immediately buffered by central banks. During 2019, growth was increasingly difficult.
US President Trump tried to lengthen the business cycle and in particular created tensions with China in order to get the intent for interest rates to fall.
It should be noted that if rates fall, a country's economic growth is supported.
A major point of difficulty was seen in September 2019. Central banks intervened by injecting liquidity into the system and restoring the system to survive.
Then came COVID-19 which led to the lockdown, a general blockade of the entire economy.
Stock exchanges collapsed, bitcoin collapsed. Gold and silver (safe haven assets) also collapsed.
There was not a single good that could be considered a refuge.
In those hours, large investors sold risky assets; they closed their dollar debt positions. The dollar shot up and suddenly got very strong.
This is what happened.
Since then, all the banks in the world have injected liquidity in an abnormal manner.
We have seen a huge acceleration of debt and an early start of helicopter money.
Liquidity pushed all assets back up, starting with the S&P 500, the US markets, which are the hardest hit and reacted fastest.
With regard to the dollar, we are back in a risk off environment. Investors borrowed in dollars and bought financial assets including bitcoin, gold, silver.
Bitcoin has gone up a lot, but Ethereum has done more ... thanks to DeFi. There are tokens that have multiplied both in number and in value in a short time (LINK).
At the end of August, too many profits were generated on both the metals, crypto, NASDAQ and Standard & Poor 500 markets.
I list some reasons why the months of September and October are of uncertainty, prudence, consolidation:
- Brexit ... we could move towards another Brexit;
- American elections;
- clash between the USA and China;
- possible war between Turkey and Greece;
- COVID-19 ... will we have an increase in cases? It is clear that we must survive the disease by waiting for the vaccine.
Analyzing the interview by Powell, Governor of the Federal Reserve, we can say that his intervention created uncertainty.
In summary, he said that inflation is not a problem as we have always had a 2% ceiling and we can go further. If COVID-19 continues its advance and there is no vaccine and if there are further tensions it is willing to print more money because it will do everything to keep the markets.
After this statement, the dollar depreciated further creating the reaction of the European Central Bank because if the dollar devalues ??too quickly it creates a problem for exports.
We need to understand how this change in American policy is interpreted by European, Chinese, British and Japanese banks. So there is uncertainty for the markets.
And when there is uncertainty it sells ... there is volatility.
So what will happen in the coming months? It is not known ... uncertainty reigns.
From an investor's point of view, if a crisis occurs, it will buy on the downside and medium to long-term investors are calm.
With reference to bitcoin ... cryptocurrencies remain the best asset of 2020.
Let us remember that it is the FIAT currencies that make bitcoin rise ... currencies are losing weight, real estate is struggling, the stock exchanges, thanks to not too accentuated inflation, react pretty well, while gold and bitcoin should continue to over-perform.
Thank you for taking the time to read this article.
Ad maiora!
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