Home News Cryptocurrency Why are investors fleeing?

Why are investors fleeing?

Why are investors fleeing?

The investor invests to make money. The strategy, then, is to buy low to sell high. Now, it’s all a matter of expectation. An optimistic investor buys. A pessimistic investor sells. The profit (or loss) lies in that difference between the current price and the future price. Before any decision, it is necessary to carry out an appraisal and a projection. In this way, we can make our bet. If the asset is being undervalued by the market, the most sensible thing to do would be to buy. If, on the other hand, the asset is being overvalued by the market, the wisest thing to do would be to buy. In the case of minor fluctuations, it is best to keep our position intact. Why are investors fleeing? Investors flee when they anticipate a decadent future.

The first thing we must take into account when making our analysis is that in the world of cryptocurrencies there is aunder heavy trading pressure to stay bullish at all times. The ship may be sinking. But the plan is always to be calm and optimistic. The most visible faces of the community have to stay true to that script. The agreed narrative must be repeated. You have to keep your spirits up. You have to keep hope alive, remembering past glories. It is a question of money. The exchanges, the funds, the specialized press and the great whales live on that hope. The baker defends his product. The candy store defends its own. The barber always thinks he needs a cut. The crypto industry is always bullish. You have no choice.

On the other hand, we must understand the times in which we live. We live in a polarized and fragmented society. that is, all we belong to a niche. We live in tribes. They always lie to us. We are always the virtuous believers. They (others) are always guilty. We are always innocent. The truth of the tribe is the truth of the universe. And everything that is not our truth is a delusion.

The world of cryptocurrencies is a niche. It is an amalgamation of libertarians, anarcho-capitalists, conservatives, venture capitalists, speculators, and all sorts of people. Now, it could be said that there are two main currents within the community: Militants and mercenaries. The militants are louder. But the mercenaries are more numerous. On the one hand, we have the eternal lovers talking about great ideas and participating in the war of ideologies with semantic games. And on the other hand we have the vast majority with much more prosaic intentions.

The ambitious young man with a desire for fortune is the protagonist of this story. Why the strong correlation between Nasdaq and Bitcoin? That correlation reveals to us the true makeup of the Bitcoin community. To understand Bitcoin you don’t have to go to Twitter or YouTube. In those spaces, we find the dogmas and aspirations of a minority that idolizes a romantic bitcoin. To understand the real Bitcoin, you have to study its behavior directly. How does the price behave? How is the market behaving?

What is Bitcoin? Bitcoin is a code. The code represents an exchange rate. Most buy Bitcoin with fiat currency expecting an increase in its price. We must recognize that Bitcoin is not a “wealth creation” asset. In other words, it is not a productive asset with intrinsic value. Bitcoin is not a food, not a territory, not a metal. It’s a code. An abstraction. Its value is monetary. A medium of exchange. Its value lies in its capacity for exchange.

Bitcoin has no police, courts, army, planes or warships. Bitcoin is a social pact of a citizen nature. Your acceptance is voluntary. But it’s not free. People must purchase this code with fiat currency in the same way that we might purchase a collectible. We are talking about a couple. And a pair is made up of the two elements. Now, people need money to purchase goods and services. These goods and services have a cost in fiat currency. With fiat currency, we can buy Bitcoin. If Bitcoin rises in price, at the time of selling, people can acquire more goods and services than at the beginning. As simple as that.

Read:  Spotify meets with investors, before 'Netflix storm'

You don’t have to be a genius to know that this system is fueled by the abundance of fiat currency. The most fanatical confuse this process with a rather elaborate rhetoric. But let’s be frank. This is how this works. Or not? In the period 2009-2021, we had the ideal conditions for the growth of Bitcoin: Slow economic growth, moderate inflation, abundant liquidity and technological optimism. During this period, every time the market fell, the US Federal Reserve came to our rescue with significant injections of money.

We are now entering a new paradigm. Inflation has skyrocketed, the price of oil has skyrocketed, there are food shortages, there are bottlenecks in almost all production and distribution chains, the confinement measures continue in China and we have a war in Europe. The US Federal Reserve this time can’t bail us out because of inflation. In fact, on this occasion, it is forced to withdraw liquidity from the system. Things have changed.

How have investors reacted? Investors have become more talkative, seeking refuge in more stable assets.. They are buying dollars. They’re buying T-bonds. They are investing in oil and commodities. Nasdaq is falling, because, for the last few years, the growth sector (tech) has been valued based on the estimate of future earnings. Of course, many are now anticipating a recession in the next few years. I mean, heFuture earnings don’t look as buoyant as before. Which implies that all valuations must be readjusted.

Reminiscing about past glories is a less sure thing this time around, because the conditions of the next few years will be very different from the conditions we have experienced so far. Two key data: Inflation and T-bonds.

TRUE. We managed to masterfully recover from the March 2020 crash. Ah, but the reality is very different this time, because this time we will not have the rescue of the Reserve. I mean precisely that, when I say that now the conditions are different. Why are investors fleeing? Pessimism about the future. Will we have a recession? We do not know. We may have a “soft landing.” However, it is not very likely. Why? Because many things can go wrong. And normally, when many things can go wrong, they usually end badly.

To do? The solution in these cases is not necessarily to panic. However, neither is falling into denial. The midpoint is the prudent reorganization of our portfolio weighing the risks. Can your portfolio withstand more drops? If your investor portfolio cannot withstand any more falls, it is probably because you are too much in debt or you have all your eggs in one basket. That portfolio may need more stability. Investing for the long term is usually the most sensible option. But you have to be able to wait. The highly indebted do not have this capacity. And the very undercapitalized also has it. Do you have your house in order?

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.

It may interest you:

Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.