The staggering fall of FTX, one of the biggest cryptocurrency exchanges, took a toll on the cryptocurrency space last week. Sam Bankman-Fried, the 30-year-old cryptocurrency titan and chief executive of FTX, has seen billions of his fortune evaporate in a bankruptcy filing that has rocked the trillion-dollar industry. The pain is probably not over for investors.
What’s Happening: JPMorgan analysts are now predicting another 25% drop for bitcoin in the coming weeks.
This is partly due to the ongoing fallout from FTX, as well as a different challenge that has already hit cryptocurrencies: in addition to raising interest rates, the Federal Reserve has been shrinking its balance sheet since June, pulling money out of financial markets to cool the economy. in the fight against inflation. These efforts mean capital is drying up – and that’s not just bad for cryptocurrencies, but other asset classes, including equities.
The big picture is that it has been a very difficult period for cryptocurrency investors: the value of Bitcoin, the largest cryptocurrency, has dropped more than 75% to $15,984 since last year, over that same period.
Cryptocurrencies have enjoyed huge cash injections during the pandemic era, thanks to the Federal Reserve’s easy money policy. The central bank kept interest rates close to zero and infused the balance sheets of big banks with cash, buying up large sums of bonds and other assets.
It is no longer the case. In recent months, inflation has skyrocketed, interest rates have risen, and that money has dried up. This is bad news for digital assets, which Wall Street analysts regard as sponges for this excess cash.
Analysts at JPMorgan say the Fed’s policies will create a major obstacle to the availability of investment money in the coming year. “All in all, the slowdown in global money growth is expected to continue into the year ahead, with some contraction looking likely in the US,” JPMorgan strategist Nikolaos Panigirtzoglou wrote in a note.
Less money means more risk aversion, and investors are abandoning cryptocurrencies. Now other digital asset platforms like Solana are also facing a cash crunch.
The spread: Other risk-sensitive industries like Big Tech are facing similar issues.
Slumps in the information technology sector, which includes companies including Apple, Alphabet and Microsoft, accounted for 44% of the decline in the entire S&P 500 during this year to October.
The reaction makes perfect sense, said David Holt, an analyst at investment research firm CFRA. The Federal Reserve essentially “poured money into the economy of a helicopter for a decade and then quickly took the punch,” he said. “This has made high-risk, high-growth sectors like cryptocurrencies unravel. This shift in mindset has also created a bulge in other pockets of the economy, such as technology.”
Another casualty: The US housing market has also been hurt by the Fed’s change in policy.
The Federal Reserve was one of the biggest buyers of debt for home loans during the pandemic. As a result, these mortgage-backed securities began to sell and mortgage rates rose significantly. They are now up 7%, up four percentage points from a year ago, and consumer purchasing power has plummeted. Sales have fallen for eight straight months, according to the National Association of Realtors.
The recovery from Covid in China
Markets applauded a move by China to ease its Covid restrictions last week. The yuan rose to its strongest level in more than a month, and Hong Kong-listed travel stocks jumped on the news.
And Chinese officials are trying to end a crisis in the country’s vast real estate sector, which has weighed heavily on the economy last year. In what could be a major turning point, Beijing on Friday unveiled a 16-point plan that reverses a crackdown on lending to the sector. Shares in China’s biggest developer rose as much as 52% in Hong Kong on Monday (14).
But investors may still want to proceed with caution.
As my colleague Laura He reported, China was beset by serious economic problems. Growth stalled, youth unemployment hit a record high, and the housing market was collapsing.
The International Monetary Fund recently cut its forecast for China’s growth to 3.2% this year, representing a sharp slowdown from 8.1% in 2021. That would be the country’s second-lowest growth rate in 46 years, better only than 2020, when the initial coronavirus outbreak hit the economy.
Barclay’s also cut its forecast for China’s economic growth next year based in part on expectations of a drop in global demand for Chinese goods and a deepening slowdown in the housing market. The sector, which accounts for up to 30% of China’s GDP, has been crippled by a government campaign since 2020 to curb reckless lending and curb speculative trade. Property prices have been falling, as have new home sales.
Singles Day disappoints: lackluster sales at the world’s biggest annual shopping event won’t help.
China Singles Day, the world’s biggest annual shopping event led by internet titans Alibaba and JD.com, wrapped up on Friday.
This year, Alibaba did not release the final sales count for the shopping festival for the first time since it began in 2009, saying the results were in line with last year.
Last year was not impressive either. In 2021, event sales were up 13%, “the smallest advance ever,” according to an analysis by Bain & Company.
Americans are feeling bad about the economy
Consumers were feeling worse about the US economy in November, according to a University of Michigan survey released Friday.
The negative outlook comes amid punishing interest rate hikes and decades-long inflation, reports my colleague Alicia Wallace.
A preliminary reading of the monthly Consumer Surveys index showed sentiment fell to 54.7 from 59.9 in October. Economists had expected sentiment levels to drop to 59.5, according to estimates by Refinitiv.
It’s the lowest reading since this summer, when sentiment bottomed out after gas prices hit a record high in June.
Why it matters: The Fed is closely watching changes in consumer expectations to determine whether inflation is consolidating in the United States. If consumers believe that prices will remain high, this could lead to increased wage demands which, in turn, will influence companies to raise prices.
Source: CNN Brasil
A journalist with over 7 years of experience in the news industry, currently working at World Stock Market as an author for the Entertainment section and also contributing to the Economics or finance section on a part-time basis. Has a passion for Entertainment and fashion topics, and has put in a lot of research and effort to provide accurate information to readers.
