In the era of "overall bubble", who are Bitcoin's competitors?
Original title: "The Daily Dive #151 - Higher Volatility And Less Liquidity"
Original source: The Deep Dive by Bitcoin Magazine
Original compilation: Kxp, Rhythm BlockBeats
Original compilation: Kxp, Rhythm BlockBeats
heightened economic uncertainty
The FRED Equity-Related Economic Uncertainty Index hit a record high for the sixth time today amid a continued drying up of liquidity in risky assets, and rapid gains in the index are often accompanied by sharp declines in the S&P 500.
Inflation in the U.S. is at a 40-year high (as is the rest of the world), which has largely driven investment-grade bonds out of the market, as nominal yields are well below inflation even ignoring any risk of default up.
We have said many times in the article that Bitcoin's competitors are not just as simple as gold, but also the currency premium in the global bond market and even the stock market in the entire bubble era.
Total Bubble Era
We've been using the term "full-blown bubble" to describe the current state of the international monetary system today, but why did we choose that term?
The Federal Reserve Board, which is also the "lender of last resort" to the dollar (the world's reserve currency), has worked for decades to reduce the volatility of the dollar.
What we need to note is that since Alan Greenspan and the "Greenspan Strategy" (later known as the Fed Strategy), the financial market has realized that the Fed will adopt ways to support the credit market and maintain the flow of funds. Deal with market volatility. Now in 2022, the Fed's funds rate is still at the zero lower bound and has become a political tool, yet it has failed to prepare for a drop in liquidity across financial markets.
on the142In the interim, we explore the impact of the current credit market sell-off:
“Following the decline in debt instrument prices, funding costs across the economy will also increase, as a 40-year CPI index combined with a hawkish Federal Reserve will force lenders to seek higher yields.”
"What we should pay attention to in the future is the transaction situation in the credit market, because whether it is from the perspective of corporate financing or market valuation, the credit market has a direct impact on the stock market."
"As the Fed's rate hike cycle looms, we will be watching developments in credit markets closely in the coming months."
Corporate Credit Market Liquidity
The chart below compares yields between U.S. corporate bonds and U.S. Treasuries, which are about to see a big jump in yields. During this period, there is a synchronized sell-off in Treasuries, which means business financing is surging at a time when household income (and spending) is being squeezed.
Earnings multiples have also retreated in recent months as the market adjusts to the rising cost of capital and stocks have sold off heavily. Not only has this increased market volatility, it has had a cascade of knock-on effects across all asset classes.
While we are in a period of high volatility in the stock market, Bitcoin has recently been selling in tandem.
Why do monetary assets such as Bitcoin have such a market reaction? This is because the fiat currency system is actually built on the underlying dollar short trade behind it. Thanks to the policy of extending the credit period, the US dollars in the market can be circulated. Therefore, during periods of declining or decelerating market liquidity, multiple assets will also sell off in tandem.
Right now, it looks like we are in a paradigm of heightened volatility in the stock and bond markets.
Bitcoin will respond the way it has always done: empower its users with digital property rights while credibly enforcing a fully fixed end-supply cap, enforced by Crypto algorithms rather than bureaucracies.
The overall US debt-to-GDP ratio is about 400%, which means that for every $100 of output there is $400 of interest-bearing debt.
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