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> 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?
by 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 agoBecause capital is necessary for growth and the more expensive capital becomes the less growth is anticipated.
- kiviuq 4y agoWe'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 agoMoney 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 agoI 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 agoCrypto 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 agoI 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 agoThat’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 agoMoney flow retracts if its cheaper to save than to borrow.
- deevolution 4y agoInterest 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 agoI 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 agoThe 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 agoBecause: Argentina. Not sure if you truly grasp the global impact that the United States fed policy has.
- eric_cc 4y agoMarket becomes less speculative.