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Why do you believe that is the case? How is this hypothesis explained?

rapsey 4y ago
Crypto very much follows the stock market. Interest rates are inversely correlated to stock market performance. After 2008 the stock market went into the longest bull run in history which has now reversed this year. Stock market is down and crypto is collapsing because it is the wild west. There are for sure going to be multiple exchange collapses not just FTX.
- andruby 4y ago
  > Crypto very much follows the stock market. Is that based on observing a correlation between both or is there an underlying hypothesis/theory/mechanism why crypto follows the stock market? I'm genuinely curious, not trying to imply this isn't the case.
  - tome 4y ago
    I assume the hypothesis is that people threw cheap money into both. Now cheap money is over, people are withdrawing from both.
  - rapsey 4y ago
    Both. It follows it observably and the reason it does is because with low interest rates there is an excess of capital. Money is too cheap so it flows into speculative asset classes like stocks and crypto.
mshron 4y ago
Higher interest rates mean that investors can earn money by buying bonds, which are lower risk. Riskier investments (stocks, real estate, cryptocurrencies) are less attractive to investors as a result, unless they can provide even more return to compensate for the risk, which is unlikely.
- isolli 4y ago
  The can provide more return by becoming cheaper first ;)
bparsons 4y ago
It is only an attractive investment when the world is awash with excess fiat currency.
- TheOtherHobbes 4y ago
  Which is when you get bubbles of all kinds. Because with a bit of painting snd decorating - and wishful thinking, of which there is always plenty - you can make almost any bubble look like a safe profitable investment. Then the tide goes out and everyone says "How could this have happened?" Again. It's all suspiciously faith-based and aggressively anti-realistic.
jerf 4y ago
It is important to separate goals from results. It is a goal of crypto to be an independent medium of exchange, free from governments and to some extent the rest of the economy, and perhaps even someday become the basis of the economy itself. That does not mean it has done these things. It does not mean it has failed these things either, because goals frankly don't mean much. This is in one of my favorite classes of wisdom, "things that sound obvious when I say them but observably by their actions most people aren't thinking this way." Do not be too quick to say to yourself "oh, yes, jerf I know that goals aren't results", because, again, by their actions many people observably do not have this as clear in their head when they are planning and acting as they may think. As for the results of crypto, it is certainly clear that crypto is a haven for scams, pyramid schemes, and pump-and-dumps. That also on its own does not disqualify it; I think there's more in crypto proportionally than the US dollar but all fiat currencies have also had scams, pyramid schemes, and pump-and-dumps denominated in them. It is much less clear that crypto has attained its listed goals; there is non-zero evidence that they are in play, but it is also very mixed evidence and you can find plenty of evidence to the contrary of all the things I list. Crypto has largely existed in a regime with 0% interest, as was mentioned. It is a very viable theory that despite the goals of crypto of being an independent currency, that it is in fact a derivative of existing fiat currency. As for the evidence, there is the fact that it is acting exactly like a very leveraged fiat derivative would be acting when money stops being free, which doesn't necessarily perfectly logically prove the case but is strong evidence. Perhaps someday crypto will be independent but it isn't putting on a very convincing show of it right now. Instead it's looking an awfully lot like the most leveraged fiat currency derivative there is out there at the moment, or at least the most leveraged one us normals can see.
alasdair_ 4y ago
Crypto is highly correlated with equities and is sensitive to interest rates in the exact opposite way than you'd expect for something that is supposed to be inflation-proof. As a simple example: BTC stopped dropping and actually rose $1000 on Thursday when the CPI numbers came out indicating that inflation grew less than expected last month. This shouldn't happen if crypto was actually an inflation hedge. Instead, almost all of crypto's value is speculation-based and so when the supply of money is more expensive (i.e. higher interest rates), the value of crypto assets in USD tends to decline and vice versa when interest rates are predicted to be lower (or not rise as much as expected).
fortuna86 4y ago
Crypto was a play thing for people with too much money that didn't know what to do with it. The money dries up, the only use case for crypto (gambling) disappears.

Crypto very much follows the stock market. Interest rates are inversely correlated to stock market performance. After 2008 the stock market went into the longest bull run in history which has now reversed this year. Stock market is down and crypto is collapsing because it is the wild west. There are for sure going to be multiple exchange collapses not just FTX.

andruby 4y ago
> Crypto very much follows the stock market. Is that based on observing a correlation between both or is there an underlying hypothesis/theory/mechanism why crypto follows the stock market? I'm genuinely curious, not trying to imply this isn't the case.
- tome 4y ago
  I assume the hypothesis is that people threw cheap money into both. Now cheap money is over, people are withdrawing from both.
- rapsey 4y ago
  Both. It follows it observably and the reason it does is because with low interest rates there is an excess of capital. Money is too cheap so it flows into speculative asset classes like stocks and crypto.

mshron 4y ago

Higher interest rates mean that investors can earn money by buying bonds, which are lower risk. Riskier investments (stocks, real estate, cryptocurrencies) are less attractive to investors as a result, unless they can provide even more return to compensate for the risk, which is unlikely.

isolli 4y ago
The can provide more return by becoming cheaper first ;)

bparsons 4y ago

It is only an attractive investment when the world is awash with excess fiat currency.

TheOtherHobbes 4y ago
Which is when you get bubbles of all kinds. Because with a bit of painting snd decorating - and wishful thinking, of which there is always plenty - you can make almost any bubble look like a safe profitable investment. Then the tide goes out and everyone says "How could this have happened?" Again. It's all suspiciously faith-based and aggressively anti-realistic.

jerf 4y ago

It is important to separate goals from results. It is a goal of crypto to be an independent medium of exchange, free from governments and to some extent the rest of the economy, and perhaps even someday become the basis of the economy itself. That does not mean it has done these things. It does not mean it has failed these things either, because goals frankly don't mean much. This is in one of my favorite classes of wisdom, "things that sound obvious when I say them but observably by their actions most people aren't thinking this way." Do not be too quick to say to yourself "oh, yes, jerf I know that goals aren't results", because, again, by their actions many people observably do not have this as clear in their head when they are planning and acting as they may think. As for the results of crypto, it is certainly clear that crypto is a haven for scams, pyramid schemes, and pump-and-dumps. That also on its own does not disqualify it; I think there's more in crypto proportionally than the US dollar but all fiat currencies have also had scams, pyramid schemes, and pump-and-dumps denominated in them. It is much less clear that crypto has attained its listed goals; there is non-zero evidence that they are in play, but it is also very mixed evidence and you can find plenty of evidence to the contrary of all the things I list. Crypto has largely existed in a regime with 0% interest, as was mentioned. It is a very viable theory that despite the goals of crypto of being an independent currency, that it is in fact a derivative of existing fiat currency. As for the evidence, there is the fact that it is acting exactly like a very leveraged fiat derivative would be acting when money stops being free, which doesn't necessarily perfectly logically prove the case but is strong evidence. Perhaps someday crypto will be independent but it isn't putting on a very convincing show of it right now. Instead it's looking an awfully lot like the most leveraged fiat currency derivative there is out there at the moment, or at least the most leveraged one us normals can see.

alasdair_ 4y ago

Crypto is highly correlated with equities and is sensitive to interest rates in the exact opposite way than you'd expect for something that is supposed to be inflation-proof. As a simple example: BTC stopped dropping and actually rose $1000 on Thursday when the CPI numbers came out indicating that inflation grew less than expected last month. This shouldn't happen if crypto was actually an inflation hedge. Instead, almost all of crypto's value is speculation-based and so when the supply of money is more expensive (i.e. higher interest rates), the value of crypto assets in USD tends to decline and vice versa when interest rates are predicted to be lower (or not rise as much as expected).

fortuna86 4y ago

Crypto was a play thing for people with too much money that didn't know what to do with it. The money dries up, the only use case for crypto (gambling) disappears.