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Huobi Research

Analysis of the Market Crash on 6 May 2022

Authored by William Lee, Researcher at Huobi Research Institute

Cryptocurrencies and the S&P both tumbled shortly after the US stock market opened today. Bitcoin plunged more than $3,000, or 6.3%, in a short period of time. In the last 24 hours, according to Coinglass, more than 100,000 holders of Bitcoin saw a total of $370 million in value erased.

The main reason for the market plunge was the Federal Reserve’s latest monetary policy announced the previous day. This took the form of a 50BP interest rate hike which has been postponed to June, to start the shrinking of the balance sheet. The move assuaged the market’s concerns about the 75BP interest rate hike and the shrinking of the balance sheet in May, which led to the rebound in the US stock market and cryptocurrencies the same day. However, the policy effect of raising interest rate 50BP still cannot be ignored.

History shows that the 50BP interest rate hike in 1994 and 2000 produced different effects: the former achieved a soft landing of the US economy and maintained healthy economic growth; the latter punctured the stock market bubble and caused the U.S economy to fall into recession.

The 1994 rate hike was successful for two main reasons: one was a precautionary advance rate hike, and the other was a stable external environment. The failure of the rate hike in 2000 was mainly due to the fact that the U.S. stock market was already volatile then, and the 9/11 terrorist attacks shook the security and market confidence of the U.S.

Compared with 1994 and 2000, the macroeconomic backdrop in 2022 is volatile and highly uncertain. At this time, the rate hike is no longer a precautionary move, similar to what took place in 1994. The impact of the COVID-19 and the Russian-Ukrainian war has amplified market uncertainties. More importantly,the stock market bubble is already at an advanced stage. As a result, the latest rate hike has seen severe consequences similar to what took place in 2000.

Disclaimer

1. The author of this report and his organization do not have any relationship that affects the objectivity, independence, and fairness of the report with other third parties involved in this report.

2. The content of the report is for reference only, and the facts and opinions in the report do not constitute business, investment and other related recommendations. The author does not assume any responsibility for the losses caused by the use of the contents of this report, unless clearly stipulated by laws and regulations. Readers should not only make business and investment decisions based on this report, nor should they lose their ability to make independent judgments based on this report.

3. The information, opinions and inferences contained in this report only reflect the judgments of the researchers on the date of finalizing this report. In the future, based on industry changes and data and information updates, there is the possibility of updates of opinions and judgments.

4. The copyright of this report is only owned by Huobi Blockchain Research Institute. If you need to quote the content of this report, please indicate the source. If you need a large amount of reference, please inform in advance (see “About Huobi Blockchain Research Institute” for contact information), and use it within the allowed scope. Under no circumstances shall this report be quoted, deleted or modified contrary to the original intent.

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About Huobi Research Institute

Huobi Blockchain Application Research Institute (referred to as “Huobi Research Institute”) was established in April 2016. Since March 2018, it has been committed to comprehensively expanding the research and exploration of various fields of blockchain. As the research object, the research goal is to accelerate the research and development of blockchain technology, promote the application of blockchain industry, and promote the ecological optimization of the blockchain industry. The main research content includes industry trends, technology paths, application innovations in the blockchain field, Model exploration, etc. Based on the principles of public welfare, rigor and innovation, Huobi Research Institute will carry out extensive and in-depth cooperation with governments, enterprises, universities and other institutions through various forms to build a research platform covering the complete industrial chain of the blockchain. Industry professionals provide a solid theoretical basis and trend judgments to promote the healthy and sustainable development of the entire blockchain industry.

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Blockchain industry top think tank, affiliated to Huobi Group.

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Huobi Research

Huobi Research

Blockchain industry top think tank, affiliated to Huobi Group.

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