Problems in crypto Problems at Big Tech. What can we learn from this correlation? Let’s talk about Big Tech in its relationship to the crypto world.
Financial markets are never a perfect reflection of the economy. Because what we normally call “economy” are reports of a past stage. And financial markets are based on expectations of a possible future. So, the imbalance between these two worlds is our daily bread. The big technology companies (“the Big Tech”) are the leading companies in the S&P 500. And their correlation with Bitcoin and the others can no longer be denied. Understanding the ups and downs of technology helps us understand the ups and downs of the crypto market a little better.
During the confinement of 2020 (due to Covid-19), the economy experienced a deflationary crisis due to a sharp drop in demand. With everyone locked up in our homes, spending (away from home) obviously dropped considerably. And this pattern of atypical consumption especially affected the service sector. Which is very relevant, because the service sector is the main source of employment in most developed countries. So, faced with such an exceptional situation, central banks found themselves obliged to inject liquidity into the economy by reducing credit costs and buying financial instruments (public and private). In addition, governments increased their fiscal spending in the form of direct assistance and other programs. This was done as a necessary measure to counter the impact of the lockdown on the economy.
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What happened? Indeed, the medicine worked. What had to be done at the time was done. However, the medicine also had side effects. During that stage, with that great rain of paper money, the big beneficiaries were the financial markets: billionaires, technology companies, institutions, venture capitalists, family offices, crypto enthusiasts, robinhood traders and investors (large and small). ).
Consumption focused on consumer goods, digital services and digital commerce. Generally speaking, spending was directed towards digital. And the world went digital. East boom It was first capitalized by technology, start-ups and crypto. While airlines, hotels, restaurants, tourism and services were at their worst, digital took center stage.
On the other hand, the United States Federal Reserve assumed dominance of the capital market. And this dominance was exercised in two ways. First, interest rates were lowered. In other words, credit became more accessible. So financing became easier and cheaper. Second, the Fed’s purchases stimulated buybacks. The big corporations took the money from the sale of bonds to buy their own shares. And consequently, a boom speculative.
For many months, that honeymoon was sustained thanks to the “promises” of the Reserve. What “promises”? Well, it was said many times that the Federal Reserve’s monetary policy would not change for a long time. And the registered and anticipated inflation would be “transitory”. Which for the time was not the most insane idea in the world. Because production and distribution chains in the past have tended to recover relatively quickly. Then, you could say that the boom speculative (2020-2021) was based on expectations that ended in disappointment. We found out the hard way that global production and distribution chains were not as strong as we thought. The globalized system was a glass. And the pandemic works like a bat. Therefore, the “transitory” turned out to be not so transitory. Y the Federal Reserve was forced (to the surprise of the markets) to change its monetary policy sooner than anticipated.
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To add insult to injury, the end of the pandemic changed the pattern of consumption established during the pandemic quite a bit. In many ways, the consumer lowers his spending on consumer goods and increases his payments in the service sector. Y people returned to the streets. What took a lot of strength from everything digital. As a result, tech revenues have fallen significantly. And, with falling revenues, it has been necessary to take steps to reduce expenses. In fact, some companies have resorted to layoffs.
Of course, not all technologies are in the same boat. Some are better than others. In fact, we could say that in this case Governance has become a quite revealing indicator when it comes to the status of each technology at this juncture. If we use a comparative spectrum with “relative democracy” at one end and “autocracy” at the other end, a sequence could be formed. Apple at the most “democratic” end. Then Microsoft. Google somewhere more in between. Then Amazon. And finally, Meta at the other extreme as the most autocratic technology. Chance?
Bitcoin is a very close relative to tech in many ways. Obviously, Bitcoin is not a company. Bitcoin is not a productive asset. It is a speculative asset. Bitcoin is a code used as an exchange rate. And many invest in that code hoping that its price will go up in the future. But a correlativity has been created, because the crypto sector and the growth/tech sector thrive under very similar conditions. Both assets benefit from loose monetary policy. Both assets benefit from a high risk tolerance. And both benefit from the process of digitalization of society.
It could also be said that there is a demographic affinity. Crypto and Silicon Valley coincide a lot in their Californian vision of the world so popular among millennials (libertarianism, technophilia and counterculture). So there’s a lot of overlap between the two groups.
Problems in Big Tech. Problems in crypto. However, valuations in the markets are normally made through expectations. In the financial world, the “cheap” or “expensive” of an asset is not just a matter of low prices. To buy, it takes much more than low prices. The most important thing here is not a price drop. The most important thing is the anticipation of a rise in demand. The past is the past. Then, all prognosis must place its gaze in the future. Especially in the future lawsuit. Where will the buyers come from?
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Demand is formed by a combination of factors: Sentiment, productivity, macroeconomics, trends, liquidity, demographics, etc. In other words, it is not a matter of drawing lines on a graph and that’s it. Graphics are the past. And the past glories of the historical are not a sacred word. The past is not destiny. We will remember the conditions during 2016-2017. Let’s remember the conditions during 2020-2021. What did we learn from those seasons?
Now, what are the expectations for 2023? The crypto investor can read the latest quarterly reports of the technologies to form their own expectations. This way, you can design a strategy today. Here he left that idea.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here 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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