Have we reached the bottom of this bear market?
Contents (3 min read):
- 🙃 Have we reached the bottom of this bear market?
- 🏖️ IRAs, tax-sheltered accounts
- 👀 Under the Radar
- 📰 ICYMI
- 🙏🏻 Grateful for…
- 💸 Coupons
🙃 Have we reached the bottom of this bear market?
On June 15th, the Fed hiked rates this year for the third time, bringing it to 1.5%.
Central bank officials project the federal funds rate could be between 3% and 3.5% by the end of the year.
The FOMC has 4 more meetings this year and we can expect at least a 50 basis points increase at the next meeting (July 26–27).
Besides interest rate changes to influence the economy, the federal government is also able, among other things, to:
- Boost the currency, which temporarily lifts corporate profits and share prices, but ultimately lowers values and spikes interest rates.
- Intervene when companies or entire segments of the economy are failing, or threatening to undermine the whole economic system, by providing bailouts.
- Governments can create subsidies, taxing the public and giving the money to an industry, or tariffs, adding taxes to foreign products to lift prices and make domestic products more appealing.
- Higher taxes, fees, and greater regulations can stymie businesses or entire industries.
- Increase or decrease the money supply.
This time, the federal government’s interest rate increase policy has become an attempt to control inflation and an overstimulated economy. This was caused, in part, by the stimulus bills approved by Congress beginning in 2020, which unleashed the largest flood of federal money into the United States economy in recorded history.
Roughly $5 trillion went to households, mom-and-pop shops, restaurants, airlines, hospitals, local governments, schools, and other institutions around the country grappling with the blow inflicted by Covid-19.
So what now?
Consumer sentiment is very low, even though wage and labor growth seems strong, at least on paper.
Stock markets have lost more than 20% from it previous highs and crypto markets have been wiped out.
This is, in part positive in the long term. It is brutal out there, but the Quantitative tightening (QT) policy may help separate those companies and blockchain projects that are providing real value to the economy and those that are here for profit sake.
Quantitative tightening (QT) is a contractionary monetary policy tool applied by central banks to decrease the amount of liquidity or money supply in the economy. A central bank implements quantitative tightening by reducing the financial assets it holds on its balance sheet by selling them into the financial markets, which decreases asset prices and raises interest rates.
There are more than 20k cryptocurrencies in circulation and I want to believe that less than 20 of those will be thriving a year for now.
One of the reasons that we are in this predicament is that thanks to technological advances, the cost of creating a business or crypto project has dropped considerably, making it a lot easier to put a “fancy” product out that does not necessarily add value to the economy or its users.
- The Price of DNA Sequencing Dropped From $2.7 Billion to $300 in Less Than 20 Years
- In 1982, a 10MB spinning hard drive cost $2,495, or $7,210.55 inflation-adjusted. Today a 4TB spinning hard drive costs $70. That’s 40,000 times the storage for one-hundredth of the price. And storage just keeps getting faster and cheaper!
- IBM’s original PC 5150 debuted at $2,880 for a 64K system with one floppy drive — that’s $8,352 in today’s dollars. Today, $400 to $500 has been the cost of a decent entry-level desktop.
- The first cellphone, the AT&T EO released in 1993, cost a staggering $1,999 — $3,858 with inflation. Today, we can have the most powerful iPhone for about ~$1k. Needless to say, an iPhone is way more than a device to make calls.
The list goes on and on, the point is that almost anyone can create a company and attract investors and customers without offering real value. But certainly, creating value has become more difficult.
Additionally, easier access to technology at lower costs can also mean that we can move from an inflationary economy to a deflationary one very fast if the economic policy is not applied carefully and taking into consideration all the intricacies of today’s tech landscape.
In Conclusion, no one knows for sure if have reached the bottom of this bear market, we can be certain that every bull and bear market is different and the differences seem to be wider every cycle due to the way technology has shaped our daily lives and the global economy. For investors, it is important to research and find those companies that are launching valuable products and services with competitive and ethical teams. For us in general, I think that we have to do our own economic tightening, because even if the economy has reached the bottom, we may not regain confidence and be bullish for a long while.
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👀 Under the Radar
- Uniswap (UNI) — Uniswap is a popular decentralized trading protocol, known for its role in facilitating automated trading of decentralized finance (DeFi) tokens. Uniswap is the largest AMM by market cap with $2,250,497,805 and the one with the highest volume. If the Ethereum transition to PoS is successful and fees are more affordable, we may witness more mass DeFi adoption and higher value for AMMs.
- Fantom (FTM) — Fantom is a layer-1 blockchain aiming to provide an alternative to the high costs and low speeds about which users of Ethereum often complain. Fantom runs on a directed acyclic graph blockchain, similar to Hedera Hashgraph.
- Oasis (ROSE) — A privacy-enabled L1 blockchain network that focuses on offering high throughput and low transaction fees securely. Its TVL has climbed to a new high of $194.92 million, thanks in large part to the rise of the ValleySwap automated market maker protocol, which has seen its TVL climb to $125.5 million in March.
- Basic Token (BAT) — Brave, the privacy-centric web browser built on Basic Attention Token (BAT), more than doubled the size of its user base throughout 2020. The browser’s monthly active users increased from 11.6 million to 25.4 million in 2021 and as of today (June 2022), it has 59.3 million monthly users and 18.6 million daily users. Still far from Chrome, the king of browsers, which has an estimated 3.4 billion users, but brave is the fastest growing browser.
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