Posted 7 months ago | by Ben Armstrong
It has been a rough week for anything buy the US dollar. The USD has taken out key levels against the Euro, and a wider risk-off market trend is probably well underway. We have been warning about this possibility for months – and it may be more severe than many in the markets realize.
To our surprise – Bitcoin has been pretty strong. It is holding the $10,000 level, although many of the other tokens have not done as well. In fact, it appears that the DeFi space is under some major pressure – and leading DeFi tokens have been hit hard.
While some dip buying is perhaps warranted here – this sell-off may get a lot worse. The reason for this is simple – the established financial markets are overheated, running on EZ money, and disconnected from an increasingly unstable social situation.
The FED Can't Print Peace and Prosperity
It is difficult to read what the central banks have planned for the markets – but chaos seems likely.
The current FED head, Jerome Powell, seems to be shifting the responsibility to Congress for supporting markets – which is a terrible idea (although there are few good ones in this situation).
“Many of our programs rely on emergency lending powers that require the support of the Treasury Department and are available only in unusual circumstances. By serving as a backstop to key credit markets, our programs have significantly increased the extension of credit from private lenders. However, the facilities are only that—a backstop. They are designed to support the functioning of private markets, not to replace them. Moreover, these are lending, not spending powers. Many borrowers will benefit from these programs, as will the overall economy, but for others, a loan that could be difficult to repay might not be the answer. In these cases, direct fiscal support may be needed.”
In other words – the FED isn't going to go this alone – and when it turns bad – the central bank isn't going to be left with an angry mob at its front door.
It Will All End in Tears
It is pretty clear that markets don't like to hear that the EZ money party might be coming to and end – or perhaps now needs the US Congress to agree on something in order to continue.
The net result of this market shift is falling asset prices, and a US dollar that has traded up quickly against almost every other major currency. By cratering the price of 'risk' assets, a general feeling of falling liquidity is likely to hit the markets – which will actually help to bring them in-line with reality – although this is a pretty bleak situation.
For most people 2020 has been rough – and it is almost certainly going to get a whole lot worse. We would like to say that there is the possibility of improvement on the horizon – but that point in time may be a decade or two away.
Some Altcoins Will Likely Fall (Much) Further
DeFi had a great 2020 – but like Chainlink – the sector has come under majot selling pressure since August. LINK has fallen to near $8 from as high as $15 just a few weeks ago, and it may have further to fall.
Much like Bitcoin in 2017 – the promise of what DeFi can become is tremendous. The only issue is that the industry as a whole is still very new – and it will take years before people are using these amazing innovations at-scale.
Stay safe out there, and keep some powder dry. There may be some much better deals coming.
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