The UST incident hit the encryption circle hard, but the Fed's decision to raise interest rates may have a heavier impact.
Nov 23, 2024
First, the collapse of UST triggered a chain reaction, and market confidence was seriously frustrated.
The most intuitive influence is that the seigniorage share-based algorithm to stabilize the currency track may become an abandoned child of the industry. In fact, since the birth of algorithmic stable currency, the market has been aware of the risk of its own death spiral. It is only the sudden thunderstorm of UST that makes the whole industry suddenly realize this point. Of course, the scope of its influence and damage is really unexpected. Users will naturally accelerate their departure.
The vicious influence of UST will certainly attract the attention of the regulatory authorities. Last week, U.S. Treasury Secretary Janet Yellen called on Congress to regulate the stable currency. It can be expected that sanctions against the stable currency may come quickly and be more punitive than before, and the market sentiment will therefore fall into a downturn. The encryption market fear and greed index (CFGI) has fallen to a low point in the past two years, even close to the value before the outbreak in 2019.
Institutions also have a negative attitude towards the resulting market outlook. On May 13th, Citibank released a report saying that bitcoin is expected to remain highly volatile in the future due to the collapse of UST, and the influence of multiple factors including regulatory overweight and panic will aggravate the volatility.
The report also said that the current bitcoin price has fallen to close to its production cost and the valuation implied by the spot adoption model.
Second, the US stock market may have a major correction, which actually plays a key role in this round of decline.
After the encryption circle was hit hard by the UST crash, a large amount of funds flowed out, resulting in the price of Bitcoin still hovering around $29,000 this week. According to statistics, compared with the highest point of this bull market, the total market value of the current encryption circle has dropped by 1.7 trillion US dollars.
Citibank mentioned in this week's report that the plunge caused by this round of "black swan" incident is actually an inevitable event in the context of weak risk assets, but it is only accidental factors that catalyze this result. This further shows that the correlation between Bitcoin and US stocks is strong, especially in the downturn.
The agency's forecast for the overall financial market is also not optimistic. Goldman Sachs Group recently publicly warned that "enterprises and consumers should be prepared for economic recession" and has lowered the target of the end of 2022 of the Standard & Poor's 500 Index from 4,700 to 4,300.
Goldman Sachs' equity strategy team also added: "If there is an economic recession, the S&P index will be pushed down to 3,600 points." Not long ago, Goldman Sachs publicly reported that the possibility of economic recession in the United States by the end of 2022 reached 35%.
Third, what really determines the market outlook of the encryption circle will be the monetary policy of the Federal Reserve.
The consumer price index (CPI) in April in the United States rose by 8.3% year-on-year. The growth rate dropped for the first time since August 2021, but it is still at a high level, which proves that the inflation situation in the United States is still grim. According to the previous analysis of the Ouyi Research Institute, raising interest rates and shrinking the table has always been a necessary option for the Fed to deal with high inflation, which has an impact on the encryption circle.
Federal Reserve Chairman Powell reiterated his stance on fighting inflation last week, suggesting that the June meeting will continue to raise interest rates by 50 basis points. At least from the news, it has already constituted a certain negative effect. It is impossible to know whether the market can digest it in advance after the resolution is hammered.
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