Analyst explains what the current economic moment is in the world and how it can impact crypto assets
With the turn of the millennium, many predicted the last days of the world. Although the planet was not hit by an asteroid, American investors faced the “End of the world” in a sense in March 2000. A lot of speculation and excessive optimism led investors to losses totaling around $5 trillion.
We all remember one of the biggest economic collapses two decades ago, when the US stock market crashed due to an asset valuation bubble of unviable internet start-ups. Not only did the unprofitable startups fail at the time, but this bubble hurt even successful companies that had established business processes and were good at making a profit.
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Today, with corporate debt weighing on the world economy at a record level, totaling more than $300 trillion, many experts are finding some similarities with the current situation.
To understand more about the current moment we live in and how cryptocurrencies can be an alternative to the evils of governments, we had an extensive conversation with Estefano Debernardi, Business Development Manager for Latam. The interview, instead of being like a question and answer, was divided into topics to better express the opinion of the interviewee.
The Internet of the 90s: Beta Technology
According to Investopedia, in 1999, about 39% of US venture capital was concentrated in Internet companies with significantly inflated capitalization. These companies popped up almost every day.
With the bubble getting more and more inflated, at some point it would burst and some pivotal events foreshadowed this, such as the news that Japan was heading into recession. Which led to panic selling of tech stocks, which were particularly vulnerable no matter how the global economic climate worsened. In addition to the fact that the Fed raised the base rate on loans, which reduced investment capital. In the midst of these events, many investors began to realize that most startups “dot com“They hadn’t learned how to make a profit.
Only 14 years later the market managed to recover from the collapse. That is, those who bought shares in March 2000 only achieved zero net income in 2014.
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Are we in another bubble?
As of June 2022, the total US government debt reached $30.56 trillion.while intragovernmental holdings exceeded $6 trillion.
State-owned banks around the world have begun printing trillions of dollars in the hope of boosting the economy by buying bonds, putting vast sums of money in the hands of big investors. These investors should spend the money and stimulate the consumer economy, which in turn would help create jobs. However, it did not work because the investors who received that money did not want to spend it and preferred to reinvest it. While wages in the real economy were stagnant, stocks hit all-time highs before the coronavirus pandemic.
To do this, current market movements depend on the expectations of central bank investors (such as the Fed) to make significant cash injections. There is so much money in the bond market that investors are willing to take less profit. As a result, many government bond yields have fallen to zero or even lower. There are many cases of negative interest rates in the EUwhich means that the lender gives money and pays interest to the borrower. Investors are pushed into negative interest rates, earning lower returns and still keeping a large amount of money. So we have a scheme where capital flows from banks to big investors and back through ordinary people.
In Latin America, for example, inflation projections are not the most positive, which should increase the current gap between rich and poor. According to the latest ECLAC projection for the region, economic growth is expected to be lower than the levels reached in 2021.
For the third year in a row, the global economy is undergoing a real stress test. In January 2020, Covid-19 paralyzed many sectors of the economy and forced billions of people to adapt to new living conditions. Due to the pandemic, economic activity in many states has fallen for more than two years, which has affected investment activity, employment dynamics and the well-being of the population.
And so, inflation has become one of the main threats for many countries in the world. Even before the large-scale conflict in Ukraine, inflation was soaring against the background of a imbalance between supply and demand and rising cost of raw materials.
That means we have to get used to inflation and all the problems it causes, because it will continue to rise. In the United States, inflation has reached its highest level since 1982.
In this sense, Alejando Werner, former director for the Western Hemisphere of the International Monetary Fund (IMF) and current founding director of the Institute of the Americas in Georgetown, recently said that Latin America faces serious challenges. On the one hand, the world economy has recovered from the Covid-19 recession faster than expected, which has brought another problem: inflation.. This phenomenon is occurring in countries of the region such as Colombia, Chile, Mexico and Brazil. Now we are seeing rates of 8 and 11 percent that they were in the past. And to control this situation, we have seen a significant increase in international rates, which in turn will generate difficulties in financing public and private debt.
In addition to the food and energy crisis, we may face a complete redistribution of markets at the geopolitical level. A change of this magnitude leads to greater volatility and efficiency losses in the long run. Radically breaks the supply chains and rules of the global economy that have existed for the last 77 years.
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An opportunity in the crisis
We are facing a situation similar to that of 22 years ago, however, today’s crisis is much more severe than that of 2000. In the short term, the cryptocurrency market will follow the movement of stocks. Even so, as the industry evolves and new uses appear, you have the opportunity to become an independent player. In any crisis, capital seeks a “safe haven“, be it precious metals, food or even cryptocurrencies.
This movement has been noted by the volume of cryptocurrency transactions in recent years. CoinsPaid, the company responsible for processing approximately 8% of the world’s Bitcoin on-chain transactions, recorded an increase in the volume of transactions of these assets in the first half of this year close to 10 million, a volume 34.5 % higher than the second half of last year 2021.
Cryptocurrencies are seen by many as a hedge against inflation during the pandemic, a time when stock markets crashed while Bitcoin, for example, hit an all-time high, prompting more and more people to hunt for assets..
Even during the “crypto winter”, With the sudden drop in the value of cryptocurrencies, Coinspaid is surprised to disassociate itself from the devaluation of cryptocurrencies and the poor performance of the stock market. This means that interest in cryptocurrencies continues to grow and is becoming a part of everyday life for more people and changing their relationship with money and becoming a new safe haven.
Despite the volatility that the main cryptographic assets present in crisis scenarios and with the fall of the financial markets, the appreciation of cryptocurrencies is greater than the actions or in relation to the performance of fiduciary currencies such as the euro, a currency that has suffered a sharp devaluation relative to other currencies.
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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