The financial news has been somewhat bleak lately.
However, there is a silver lining to this cloud. We keep hearing words like inflation, recession, bear market, and Crypto Winter.
But are things really that bad?
While the recent dip has been hard on some investors, it has actually created an ideal opportunity for new investors to get into the market at a place where they could see life-changing gains going forward.
Let’s take a look at what’s going on in the world, how it is affecting crypto markets, and how it has created new opportunities.
But before the good news, let’s start with these simple definitions so that you know what’s being discussed here:
- Inflation, simply put, is an increase in prices.
- Recession means that economic growth has slowed.
- Bear market means that investors are, in a sense, hibernating as they see stock and crypto prices falling. They’re holed up in a proverbial cave waiting for things to heat up again. (Technically a bear market is characterised by a 20% drop from recent highs.)
- Crypto Winter is the term for a bear market in the cryptocurrency markets.
Now, let’s delve into current events so you can understand everything that’s going on in the world markets in a simple and straightforward way.
What is going on with inflation?
There are at least three things that make prices go up:
- Money printing: When governments increase the money supply.
- A hot economy: Everyone has more money to spend.
- Increased demand: Demand increases when people have more money to spend.
When the economy is hot and the government gives out free money, more people can afford to buy stuff. In comes inflation.
Prices go up — not just for consumer goods but also for stocks and other investments such as crypto.
Currently, U.S. inflation stands at 8.3%. Here in South Africa, it’s 5.9%.
This means that, on average, what cost R100 last year now costs R105.90.
What’s unique about 2022?
Supply and demand for consumer goods are generally fairly constant.
However, in 2022 there are at least two major supply problems.
One is the Covid lockdowns caused massive supply chain backlogs.
The other is that Russia and Ukraine are significant suppliers of energy (oil/gas/coal) and grain, two things everyone consumes directly or indirectly.
With Russia under international sanctions and Ukraine exports being blockaded by Russia, the prices for these two commodities are on the rise.
There’s both a reduction in supply and an increase in demand at the same time.
This causes a dilemma.
What the world is seeing now looks like a rare combination of stagnation of growth and rising prices.
Experts refer to this situation as “stagflation.”
This puts governments and banks between a rock and a hard place.
The current dilemma
Governments and central banks now have a choice to make.
They can either tame inflation or they can boost the stock markets. But they can’t do both.
Raising interest rates lowers the price of everything including stocks.
When things get this bad, the government will choose to lower inflation over boosting the stock market.
This is because only a small percentage of the population owns stocks while inflation affects everyone.
What is happening with interest rates?
In an attempt to tame rising prices while not dampening the economy too much, the U.S. central bank has raised interest rates by 0.5%.
They have also suggested that they will do this at least a couple more times over the next few months.
While 0.5% might not seem like a lot, it’s the highest interest rate hike in nearly a quarter-century.
Is there a recession on the horizon or is it already here?
As mentioned before, a recession is a period of reduced economic growth.
Technically, it’s characterised by two consecutive quarters (six months) of reduced growth.
Should you be preparing for a recession?
So far, the first quarter showed slowed growth.
But there won’t be a report on quarter 2 until later this year. Almost everyone believes that there will, indeed, be a recession (if it hasn’t hit already).
Former Goldman Sachs Hedge Fund Manager, investing guru and a mainstay of the crypto community, Raoul Pal, is predicting that rising interest rates will cause a “nasty recession”.
In a recent Twitter thread, Pal suggests that demand is collapsing due to the “largest monetary tightening in history”.
What does this mean for Bitcoin and altcoin prices?
Another term you’ve probably heard lately is “risk-off.”
In good times, the stock market is said to be “risk-on,” meaning investors are willing to make more risky investments. In times like these, it’s “risk-off.”
Investors move their money to safer bets such as real estate and gold (Revix has PAX Gold listed as one of the products).
These “safe-haven assets” offer just that, a safe haven for investors waiting to ride out the storm.
They’ve also gone digital so you can invest in gold through PAX Gold — it offers you all the benefits but none of the worries of storing the physical commodity.
Cryptocurrency is currently correlated to the stock markets.
When stocks go down, so does crypto. Although Pal says the crypto market is in “full panic mode,” he also affirms that the bottom is near.
It’s important to point out that the price of Bitcoin isn’t based on the health of the economy or corporate profits.
With crypto, prices are the hook. When prices are plummeting people steer clear. And when they’re on the rise, people want in.
It’s quite possible that Bitcoin and crypto prices could re-enter a bull market before the stock market does.
Right now, crypto is in a consolidation phase, meaning Bitcoin price is hovering around $30k.
It will have to break one way or the other to see whether or not the markets enter a Crypto Winter or a bull market.
How does all of this affect you?
What’s Pal’s advice for crypto investors?
He says that “opportunity comes out of crisis.”
He points out that the high volatility in crypto markets is also the reason why they offer the potential for massive gains.
He says the bear market gives long-term investors a “huge opportunity”.
Looking at the charts over the past six months suggests the markets are in a Crypto Winter.
However, if you zoom out over the past 12 years, Bitcoin and several other cryptocurrencies have seen stupendous gains.
There was a similar situation with the “.com boom” and subsequent bust in the early 2000s.
Many investors got burned and swore off risky tech stocks.
However, those people ended up missing the best opportunities of the past two decades.
If they had just left their investments in companies like Amazon, Apple, and Google, they would have seen some of the most biggest gains in history.
The chart below shows this.
If the current trend in the growth of crypto adoption continues, crypto could reach one billion users by 2031 — ten times what there are today.
In other words, you’re still early.
The recent “crash” actually presents an amazing opportunity to get into crypto at a great price and potentially see life-changing gains.
In fact, investment bank JPMorgan says Bitcoin has “significant upside from here” and that in their opinion, the fair price is 28% higher than its current level.
They’re also putting their money where their mouth is, noting that cryptocurrencies have overtaken real estate as one of the company’s preferred “alternative assets.”
Basically, “Keep calm and carry on,” says Pal.
If you’re convinced like Raoul Pal that the recent big dip in crypto prices is a buying opportunity, Revix (a Cape Town-based crypto investment platform) is running a promotion designed to kickstart your crypto investment journey.
Now you can invest fee-free in the original and crown cryptocurrency, Bitcoin!
This is your opportunity to add your name to the Bitcoin story. And if the plot so far is anything to go by, it’s one you really want to be part of.
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For more information, please visit revix.com