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His claim... "it collapsed, because it doesn’t bring anything useful for society" ...is incorrect. The total crypto market cap collapsed because of interest ra

by tric 4y ago

His claim... "it collapsed, because it doesn’t bring anything useful for society" ...is incorrect. The total crypto market cap collapsed because of interest rate hikes. Nvidia's stock dropped 68%. Is that because it didn't bring anything useful for society? No. It was trading at a premium because of low rates.

TrainedMonkey 4y ago
> The total crypto market cap collapsed because of interest rate hikes. Let's take a deeper cut, why does something collapse when interest rates rise?
- nightski 4y ago
  Because capital is necessary for growth and the more expensive capital becomes the less growth is anticipated.
  - kiviuq 4y ago
    We've seen a lot of growth over the past decades, so it should be easy to retire at 30, but we're being told to work longer, be more productive, and die sooner. So where is that all growth? something doesn't add up.
    - everfree 4y ago
      > So where is that all growth? Is that a rhetorical question? It flows to the 1%. Current levels of wealth inequality are unprecedented in American history. We work hard to support the lavish lifestyles of the rich. If we could combine today's technology with 1970s levels of wealth equality, we could probably retire in 1970s level comfort by the time we reach age 40.
- enjoy-your-stay 4y ago
  Money flows out of equities and into bonds which yield a higher more dependable return when interest rates are high enough. The equities market was already running at artificially inflated values for some sectors (like technology), which means there isn't much growth potential (if everything is deemed to be already overpriced), and so the outflows were quite significant from those sectors, accentuating the inverse relationship between equities and interest rates.
  - mumblemumble 4y ago
    I would argue that cryptos are typically not equities; they're usually either commodities (cryptocurrency) or some sort of non-current intangible asset (NFTs). The exception would be things like shares in the DAO, which, while interesting, is not typically what people have in mind when they say "crypto" these days.
    - mgfist 4y ago
      Crypto is not an equity, but it trades like one (specifically like a tech meme stock) as of late. It peeked in Nov 2021 just like tech stocks, and has come down roughly a similar amount.
    - enjoy-your-stay 4y ago
      I can't say for sure, but I think cryptos are actually behaving a bit more like precious metals, in that people use them as speculative store of value - so a bit like you say, commodities. The other thing that surprises me is the sheer number of currencies that currently exist - I had thought there would be a massive shake-out in the market but so far they seem to be multiplying like fungus.
      - erik_seaberg 4y ago
        That’s a good model. Gold and diamonds actually have industrial applications, but those price signals are lost in the noise of fashion and speculation. If they were suddenly unpopular, prices would drop, but not to zero.
- joemazerino 4y ago
  Money flow retracts if its cheaper to save than to borrow.
- deevolution 4y ago
  Interest rates in Argentina have been on an upward trend for the last decade [1], yet bitcoin is near its all time high relative to the Peso [2]. How do you explain the contradiction here? [1] https://tradingeconomics.com/argentina/interest-rate https://tradingeconomics.com/argentina/interest-rate [2] https://tradingeconomics.com/btcars:cur https://tradingeconomics.com/btcars:cur
  - zaroth 4y ago
    I fail to see the contradiction. The capital has already all fled Argentina, and higher rates aren’t going to entice many dollars back in.
    - deevolution 4y ago
      The claim is higher interest rates cause things to collapse. US interest rate go up, bitcoin go down! Argentina interest rate go up, bitcoin go up! Contradiction. What you pointed out tho is important: fiat is a confidence game at the end of the day, and it doesn't matter how much yield a fiat offers if it lacks confidence. Bitcoin is more or less a measure of how much confidence people have in their respective fiat currencies.
  - eric_cc 4y ago
    Because: Argentina. Not sure if you truly grasp the global impact that the United States fed policy has.
- eric_cc 4y ago
  Market becomes less speculative.
anonymouskimmer 4y ago
> The total crypto market cap collapsed because of interest rate hikes. It's constantly been peaking and collapsing since 2013, when there were no US interest rate increases. The 2017 peak happened in the middle of a US interest rate increase cycle. The 2021 peak happened 6 months before the most recent US interest rate increase cycle. I'm sure interest rates were varying in other countries on different schedules, but blaming a crypto market collapse on interest rate hikes doesn't seem to square with the data.
- nightski 4y ago
  Yeah but institutional investors were just starting to hold much larger positions within the last few years. They are much more sensitive to interest rate hikes than individuals.
  - anonymouskimmer 4y ago
    I would assume that as long as the returns are greater than the interest rates, institutional investors are less sensitive than individuals to interest rate hikes.
- tric 4y ago
  > The 2017 peak happened in the middle of a US interest rate increase cycle. The 2021 peak happened 6 months before the most recent US interest rate increase cycle Denominate the Bitcoin market cap in US M1 money supply. You will then see that it peaked in 2017, 2019, and 2021 (twice). This ratio also bottomed recently. Effectively, when the central bank that manages the word's reserve currency starts printing money (or there is an anticipation of printing), Bitcoin appreciates. The opposite happens during tightening (ie rate hikes).
- eric_cc 4y ago
  In recent years, you can argue that bitcoin has acted as a canary in the coal mine. Bitcoins chart is pretty much the same as stocks (especially tech/growth stocks). It just moves slightly ahead of stocks sometimes.
jeffreyrogers 4y ago
So much for crypto being an inflation hedge.
- deevolution 4y ago
  It's a hedge against currency debasement. And it hedged pretty well against that! From the moment M2 supply increased (Feb 2020) to the moment M2 began decreasing(jan 2022), bitcoin earned you almost 400%.
uxp100 4y ago
Might be true, but I think you should look at Nvidias stock price.
- tric 4y ago
  Take a look at Bitcoin. It's up 80% from the recent bottom. NVDA is up 140% for similar reasons: the market anticipates the tightening cycle is over. It's up more than Bitcoin because of the AI narrative. It's also possible money is moving out of bank stocks (compare to KRE or XLF), small/mid-cap stocks (compare to IWM), and other semiconductor stocks (compare to SMH). This trend could mean-revert into the new quarter. The comment I was originally addressing was about the decline, not the rally.

by tric 4y ago

TrainedMonkey 4y ago

> The total crypto market cap collapsed because of interest rate hikes. Let's take a deeper cut, why does something collapse when interest rates rise?

nightski 4y ago
Because capital is necessary for growth and the more expensive capital becomes the less growth is anticipated.
- kiviuq 4y ago
  We've seen a lot of growth over the past decades, so it should be easy to retire at 30, but we're being told to work longer, be more productive, and die sooner. So where is that all growth? something doesn't add up.
  - everfree 4y ago
    > So where is that all growth? Is that a rhetorical question? It flows to the 1%. Current levels of wealth inequality are unprecedented in American history. We work hard to support the lavish lifestyles of the rich. If we could combine today's technology with 1970s levels of wealth equality, we could probably retire in 1970s level comfort by the time we reach age 40.
enjoy-your-stay 4y ago
Money flows out of equities and into bonds which yield a higher more dependable return when interest rates are high enough. The equities market was already running at artificially inflated values for some sectors (like technology), which means there isn't much growth potential (if everything is deemed to be already overpriced), and so the outflows were quite significant from those sectors, accentuating the inverse relationship between equities and interest rates.
- mumblemumble 4y ago
  I would argue that cryptos are typically not equities; they're usually either commodities (cryptocurrency) or some sort of non-current intangible asset (NFTs). The exception would be things like shares in the DAO, which, while interesting, is not typically what people have in mind when they say "crypto" these days.
  - mgfist 4y ago
    Crypto is not an equity, but it trades like one (specifically like a tech meme stock) as of late. It peeked in Nov 2021 just like tech stocks, and has come down roughly a similar amount.
  - enjoy-your-stay 4y ago
    I can't say for sure, but I think cryptos are actually behaving a bit more like precious metals, in that people use them as speculative store of value - so a bit like you say, commodities. The other thing that surprises me is the sheer number of currencies that currently exist - I had thought there would be a massive shake-out in the market but so far they seem to be multiplying like fungus.
    - erik_seaberg 4y ago
      That’s a good model. Gold and diamonds actually have industrial applications, but those price signals are lost in the noise of fashion and speculation. If they were suddenly unpopular, prices would drop, but not to zero.
joemazerino 4y ago
Money flow retracts if its cheaper to save than to borrow.
deevolution 4y ago
Interest rates in Argentina have been on an upward trend for the last decade [1], yet bitcoin is near its all time high relative to the Peso [2]. How do you explain the contradiction here? [1] https://tradingeconomics.com/argentina/interest-rate https://tradingeconomics.com/argentina/interest-rate [2] https://tradingeconomics.com/btcars:cur https://tradingeconomics.com/btcars:cur
- zaroth 4y ago
  I fail to see the contradiction. The capital has already all fled Argentina, and higher rates aren’t going to entice many dollars back in.
  - deevolution 4y ago
    The claim is higher interest rates cause things to collapse. US interest rate go up, bitcoin go down! Argentina interest rate go up, bitcoin go up! Contradiction. What you pointed out tho is important: fiat is a confidence game at the end of the day, and it doesn't matter how much yield a fiat offers if it lacks confidence. Bitcoin is more or less a measure of how much confidence people have in their respective fiat currencies.
- eric_cc 4y ago
  Because: Argentina. Not sure if you truly grasp the global impact that the United States fed policy has.
eric_cc 4y ago
Market becomes less speculative.

anonymouskimmer 4y ago

> The total crypto market cap collapsed because of interest rate hikes. It's constantly been peaking and collapsing since 2013, when there were no US interest rate increases. The 2017 peak happened in the middle of a US interest rate increase cycle. The 2021 peak happened 6 months before the most recent US interest rate increase cycle. I'm sure interest rates were varying in other countries on different schedules, but blaming a crypto market collapse on interest rate hikes doesn't seem to square with the data.

nightski 4y ago
Yeah but institutional investors were just starting to hold much larger positions within the last few years. They are much more sensitive to interest rate hikes than individuals.
- anonymouskimmer 4y ago
  I would assume that as long as the returns are greater than the interest rates, institutional investors are less sensitive than individuals to interest rate hikes.
tric 4y ago
> The 2017 peak happened in the middle of a US interest rate increase cycle. The 2021 peak happened 6 months before the most recent US interest rate increase cycle Denominate the Bitcoin market cap in US M1 money supply. You will then see that it peaked in 2017, 2019, and 2021 (twice). This ratio also bottomed recently. Effectively, when the central bank that manages the word's reserve currency starts printing money (or there is an anticipation of printing), Bitcoin appreciates. The opposite happens during tightening (ie rate hikes).
eric_cc 4y ago
In recent years, you can argue that bitcoin has acted as a canary in the coal mine. Bitcoins chart is pretty much the same as stocks (especially tech/growth stocks). It just moves slightly ahead of stocks sometimes.

jeffreyrogers 4y ago

So much for crypto being an inflation hedge.

deevolution 4y ago
It's a hedge against currency debasement. And it hedged pretty well against that! From the moment M2 supply increased (Feb 2020) to the moment M2 began decreasing(jan 2022), bitcoin earned you almost 400%.

uxp100 4y ago

Might be true, but I think you should look at Nvidias stock price.

tric 4y ago
Take a look at Bitcoin. It's up 80% from the recent bottom. NVDA is up 140% for similar reasons: the market anticipates the tightening cycle is over. It's up more than Bitcoin because of the AI narrative. It's also possible money is moving out of bank stocks (compare to KRE or XLF), small/mid-cap stocks (compare to IWM), and other semiconductor stocks (compare to SMH). This trend could mean-revert into the new quarter. The comment I was originally addressing was about the decline, not the rally.