July 5, 2024
Here's Why the Best of 2024 Is Still to Come for Crypto
Dear Subscriber,
 |
| By Juan Villaverde |
As dark clouds and dire weather drive a lot of casual investors to despair, there's one compelling reason for optimism: Everyone is concerned.
I already made my case for being a contrarian. But there’s one more important piece of the puzzle: If there's one thing markets love, it's climbing a wall of worry.
The current macroeconomic situation is the dubious harvest of certain seeds planted back in 2022. That was the year the Federal Reserve (and other central banks) began hiking rates to combat inflation.
This aggressive policy soon caused a significant downturn in global investment markets. None were harder hit than government bond markets, which experienced one of their worst years in over a century.
This dismal performance rightly spooked investors, leading to doomsday predictions about the global economy.
But a funny thing happened on the way to the apocalypse: The fabled meltdown failed to show up.
Indeed, here we still are, two full years later. The Earth is still turning. And the world as we know it has not ended.
Back in 2022, I said central banks would hike rates until something broke. Sure enough, the break came that October, when the U.K. government bond market faced complete collapse.
This crisis marked a turning point. Global risk assets hit a low and then rebounded. Since then, everything from crypto to stocks has bounced back heartily.
Today, many assets are trading at new all-time highs, buoyed by a wave of liquidity that flooded markets following the London bond debacle. But while asset prices surged, interest rates are only now starting to come down.
Some central banks have begun cutting rates. Others, particularly the Fed, are expected to follow suit. This development bodes well for the remainder of 2024.
Yet, the fearmongers are nonetheless still out in force, predicting another 2008-style global recession. Moreover, the intensity of their pessimism is borderline delusional.
Yes, there are issues brewing …
The Japanese yen is trading at multi-decade lows against the U.S. dollar.
Chinese real estate prices are imploding.
And just this week, bond yields began to surge again. That prompted the customary chorus of doom and gloom, claiming global central banks had lost control.
Hogwash!The truth is a lot simpler.
Asset prices rebounded because a torrent of liquidity (largely freshly printed paper money) began pouring into global markets in late 2022.
But last March, the easy money suddenly stopped flowing. Like a patient experiencing withdrawal symptoms, markets soon showed signs of strain.
This isn't a sign of imminent doom, however. Quite the opposite. It's a signal that bullish times are about to return.
Why is that?
Because when yields surge and currencies collapse, monetary authorities start pumping new money into the system to postpone catastrophe.
Literally all the concerns mentioned above — the weakness of the yen, Chinese property meltdowns and sharply rising government bond yields — can be assuaged by cutting interest rates and printing fresh money.
Understanding the link between liquidity and crypto is crucial for success in these markets.
Last week, I said crypto is likely at a cycle low because sentiment had soured significantly over the past few weeks. And as I now look around the world, I see another epic injection of liquidity on the way … to stave off financial Armageddon.
The second quarter of 2024 was rough for crypto. But the outlook is improving daily.
The fear and pessimism we're seeing now among traders and investors are classic indicators of a market bottom.
With central banks poised to inject liquidity, and the wall of worry standing tall, we are very likely on the cusp of a significant and very welcome turnaround in crypto asset prices.
So don’t be dissuaded by the sleepy summer market. Big things are still ahead in this crypto bull market.
Hold on tight.
Best,
Juan Villaverde
Tidak ada komentar:
Posting Komentar