Inflation is the result of an overheated economy. In other words, the demand is too high and the supply has not been able to keep up for various reasons. Consequently, central banks have been forced to raise interest rates to withdraw liquidity. The situation obviously affects valuations. The objective of the monetary policy of the Federal Reserve of the United States, at the moment, is to slow down the economy. What you want is to lower inflation at all costs. Because a healthy economy needs stability in its currency. Ironically, this implies that bad news is good news.
An economic slowdown, under normal circumstances, is not good news because it usually means a drop in production. Which, in turn, implies a reduction in income. Therefore, a possible increase in unemployment. Of course, “normal” in this context suggests a moderate inflation rate of 2% or less. Right now, the context is different. We are in exceptional circumstances. The economy needs to cool down quite a bit for long-term economic health. Why? Because inflation is an evil with a thousand faces. The beast must be brought under control as soon as possible.
The priority is to lower inflation. As simple as that. That means that central banks cannot stop halfway due to pressure from politicians and the public. In other words, inflation must go down yes or yes. With recession or without recession. In other words, now everything depends on the inflation data. Inflation must go down. And this is achieved with a significant reduction in demand or with a significant increase in supply. However, I am afraid that the central banks have no control over the latter.
Wall Street, Bitcoin and the other cryptocurrencies in general benefited quite a bit from the relief rally after the latest Federal Reserve meeting. The market has assumed a more optimistic interpretation of reality lately. Everything is based on the following assumption: Inflation peaked in June and will start to decline in the coming months. In consequence, the Fed will lower rates again sooner rather than later. In other words, there is already a light at the end of the tunnel. This assumption changed the sentiment in the market. Which greatly benefited the assets risk on. Nevertheless, doubts are gradually returning. Investors are recognizing that this story is not over yet. This isn’t over until it’s over.
Now, let’s talk, with a critical eye, about the top crypto news of the week.
Analysts Reveal a “Technical Recession” as Crypto Markets Rebound
Two consecutive quarters of negative GDP growth in the United States qualifies as a “technical” recession. That’s right. But it’s not enough. Because inflation is still too high. The job market is still too hot. And the consumer continues to overspend. It doesn’t feel like a recession yet, because people are still partying. In this sense, there is no recession. But you have to give time to time.
The market is assuming that the worst of inflation is behind us. Inflation is thought to have peaked in June and the slowdown has already begun. In other words, the measures of the Reserve, it seems, are working. Which means that we will soon be back to normal. Which is positive for Wall Street and cryptocurrencies. The relative recovery of the last days does not occur, because we are in a “technical” recession. It happens because investors are assuming that the Fed’s policies are working. And this means that “normal” is closer than ever.
Honduras seeks to attract tourist crypto investors with its new Bitcoin Valley initiative
This, in my opinion, is more about Bukele than Bitcoin. Bukele’s popularity in Central America is undeniable. So it would not be unreasonable to assume that the politicians of the other countries want a piece of that cake. In other words, they imitate the subject to gain political capital. On the other hand, traders also make their calculations. And they don’t want to be left behind. That is, they get creative to stay competitive. It’s not a bad idea. Everything that attracts investment and tourism is positive.
In these cases, the important thing is not to fall into extremism. Excessive enthusiasm can be counterproductive. For example. If the measures are too radical, that can scare off investment. It is no coincidence that the Bitcoin law in El Salvador has generated nervousness among buyers of Salvadoran bonds. Frankly, it makes no sense to take a measure with the intention of attracting investment, scaring away capital in the process with improvisation and radicalism.
In general terms, the announcement by the Central Bank of Honduras is very positive, because every market requires clear rules. In these cases, ambiguity is not beneficial. In general, it seems to me a very serious and responsible statement. It tells us that we are dealing with an objective, technical and independent institution. And it does something very important. It fulfills its duty to mention the risks of investing in cryptocurrencies.
Well, we know that the future is not written. All these projects are ideas in progress. And nothing is guaranteed. Of course it is perfectly possible that the plans of Facebook (now Meta) fail. However, that remains to be seen. In fact, Ethereum will be one of the great beneficiaries of the success of the metaverse. Users will surely have centralized options and decentralized options. In a free market, the one who offers the best product wins. The users here are the ones who will have the last word. In the user, lies the success or failure of Facebook (now Meta). Vitalik is just a swallow giving his opinion.
In relation to cross-border payments, Bitcoin is very convenient in many cases. Above all, it is very convenient in the absence of other alternatives. For example. In the gig economy, among the unbanked from different countries, Bitcoin is an option. However, stablecoins are also an option. In fact, for some, it is a superior option due to the volatility of Bitcoin. In the case of stablecoins, the problem is the lack of regulation that generates mistrust. Therefore, I would not be at all surprised if a regulated, insured and audited stablecoin gains popularity over time. CBDCs could undoubtedly be a great option in many cases. They will not be a panacea. The privacy issue is problematic. Nevertheless, yes they could be a solution for many problems.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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