Crypto and the Flight to Safety
I'm seeing lots of talk about the fall in the price of STEEM and cyrptocurrency more generally.
Some are excited for the buying opportunity, some are nervous.
Which side is right? Like most real-world answers, it depends. Both have a point.
In the global financial scene, we are seeing a shift that we haven't seen in over a decade. Central banks are contracting the base money supply. The crash that people like me have been warning about for years is beginning. The bad news is that despite the focus on events like Black Monday, crashes actually take a while to happen. Your typical modern recession is about 2 years.
Right now we are just seeing marginal traders get called out. Those traders who were leveraging up their positions with margin debt are getting called by their brokers to either put up more cash or sell. Most of them don't have the cash, so they are selling, which increases the selling pressure on the next trader.
In that kind of environment, people tend to engage in the Flight to Safety. This means they sell their risky assets that are going to go down in the recession and buy less-risky assets that will hopefully not go down or stay the same. The usual beneficiaries of the Flight to Safety are the US Dollar and some government bonds. To a lesser degree, gold gets the safe haven bid.
So where does crypto fall in all this?
Sad to say, crypto is one of those risky assets that people (large traders especially) are selling to get their money out of. Why large traders especially? Because they are just trading crypto like any other financial asset. They aren't in it for the tech or for the future.
Those BTC fanyboys who say it's a store of value are wrong. At least today they are wrong. Maybe in the future when the crypto revolution becomes mainstream they will be right.
For myself, I am utterly convinced that crypto is a vastly superior technology to fiat for the need of a money. So I am a believer in the future. The question is how low will crypto, and STEEM specifically, go? It becomes a question of whether to catch a falling knife or potentially miss the bottom.
Where will the price bottom out? No idea!
When will the price bottom out? When the selling stops!
So what am I doing? Mostly buying SteemMonsters. #monsterbanking
I'll probably start buying STEEM for STEEM's sake in the new year.
We need to see more real world applications of cryptocurrencies for them to skyrocket in price. Mere speculation will just result in what we are currently experiencing. Bubbles and bursts.
I think the real world application we need is to use crypto as money.
Definitely...
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It seems like there's probably a price point where crypto becomes an attractive asset to flee into. In that sense we might end up very happy that we're seeing our crash before the traditional equities/real estate crashes.
Perhaps strangely, I'm a lot less worried now about an equities crash taking crypto with it than I was in August. Already being there may not feel great but in some sense it stands to be an edge, if we presume cryptos are going to survive at all.
That last point is critical. One of the common phenomena of booms and busts is industry consolidation.
The weak players get bought up or wiped out and the strong players survive for the next round.
Previous crashes in crypto were really just involving BTC because that's all there was. Now there have been thousands of "projects" launched, and we know the vast majority are garbage. So if crypto survives, it will be the strong few that make it.
But I don't think there's any price at which institutional money will see crypto as an asset to flee into. Individuals like us who see a different future for money and technology, yes.
In the US/Western Europe, probably true. But when the crash comes if we don't see significant Brazilian money head into cryptos I'll be surprised.
That's certainly possible. I wonder how much difference institutional 2nd/3rd world money would make if/when their currencies collapse.
Great points to agree with! Many market participants in both traditional and crypto markets seem to be looking for liquidity given the uncertainty in economies and even geo political tensions around the world. However, I believe it could lead to some flows into crypto in the long run as the US Dollar may begin to officially lose its status as a reserve currency.
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USD losing reserve status is a very long-term play.