The macro scene continues to look pretty shaky. As cryptocurrency investors, we really need to pay attention to this because we have seen an incredible correlation recently between the cryptocurrency markets and top stock indexes in the United States.
In the latest video, Lark Davis, an expert in the crypto space, has shared with you the 5 biggest dangers for Bitcoin and the market that you need to be keeping an eye on, because that can positively or negatively affect the equity vicariously the crypto markets.
Recession
The first big danger mentioned on the list is a recession. A recession is a normal part of economies. If we do get a recession, what does that mean? For the equity markets, when we have recessions, our crypto coins usually perform their worst from six months to a year before the recession happens.
During the recession, we tend to get a lot of positive returns. So this is before a lot of negative returns led to the recession. During the recession, we tend to get some moderately positive returns to some pretty shockingly bad returns.
After recessions, we tend to see markets moving pretty quickly. We can see a lot of returns coming back in just after the recession has finished.
Rates
The second danger to keep an eye on is the rate. So the Federal Reserve has started raising interest rates. It can last as long as a few months after the rate hike is announced, where we see markets correcting down from 5% to 10%, taking a long time to get back to the price they were.
When the rate hike was announced, the key thing is that after a year, we tend to have positive returns. So the first 3 to 6 months can be shaky, after 6 to 12 months, we can get a positive return and in almost every situation, it has resulted in a positive return for the stock market. The high correlation is good for the cryptocurrency markets.
Inflation
The current rate of inflation is at 8.5%, which is absolutely high. When we have high inflation, during these kinds of market situations, we have high persistent inflation that keeps rising.
There’s only a 48% chance that equity markets will exceed the inflation rate over a 12-month period, which means that markets may underperform versus inflation unless the FED can really start getting inflation down in the very near future.
Conflict
The fourth thing we have to be keeping an eye on is obviously the conflict between Russia and Ukraine. The war is not over in Ukraine and this is a big deal for a lot of products globally.
Ukraine is a massive producer of a lot of key food products. People in countries all around the world rely on these foodstuffs, and if Ukraine’s supply is not going into the market, massive disruption to political systems, massive hunger crises and all these kinds of things.
So it has a lot of far-reaching effects beyond the borders of Ukraine and we also have the issue of, what’s going to happen to the price of fuel, especially for the transportation of goods, which means the prices could continue to go higher and inflation could continue to go higher for key products.
FED Selling
The final thing that we have to take note of is the Federal Reserve bringing up the possibility of selling mortgage-backed securities. They have announced that they’re going to be drawing down up to $95 billion a month worth of the assets that they currently hold.
The reality is that $95 billion a month in FED holdings are going to be gotten rid of, which means when the treasury bond comes to its expiration date, they’re simply not buying more of them. If they start selling mortgage-backed securities that could put a huge amount of pressure on equity markets, which would not be good for crypto markets.