Financial markets still seem to be discounting the prospects of more difficult and expensive capital raising after interest rate hikes and a weaker outlook for the economy with consumption falling due to inflation.
Thus, the stock market saying sell in May and go away in 2022 sounds prophetic, as since the beginning of the month it has been hard to find financial assets that could gain in value. For the first 10 days of the month alone, the German Dax fell by about 4 percent, the U.S. Nasdaq 100 by 3.7 percent, the S&P 500 by 2.5 percent, and the DJIA by 1.5 percent. Silver has dipped by 4.5 percent, Meanwhile, since the beginning of the month, the U.S. dollar has gained 0.64 percent. The markets are therefore seeing a broad outflow into cash as part of the potential cash phase of the business cycle, which typically occurs before the bond phase, when these have reached the peak of their yields. This, in turn, may be related to the anticipation of interest rate hikes and a peak in inflation.
Nevertheless, it can be added that today's financial market offers solutions that can allow trading both under the rise and also under the fall of financial asset prices, including cryptocurrencies.
It is cryptocurrencies that may be the loudest again today, since the beginning of May brought a crash in this market. Tonight bitcoin was trading near of $29,000, which was the lowest value since the crash in May 2021. It is safe to say that history has repeated itself in May 2022, and the background seems very interesting. We are talking about the breaking of the stablecoin UST, which at one point was trading below $0.7. This in turn may have forced the release of bitcoin reserves, which were a hedge against a 1:1 UST to USD exchange rate and a massive supply of BTC tonight. The event was reminiscent of George Soros' breaking of the Bank of England or the release of the franc from the minimum exchange rate at 1.20 against the euro.
Once again the financial market, this time in crypto, served up an event like we have never seen before and on a scale that has not been seen before. Whether cryptocurrencies can recover from this remains an open question, as one of the stable coin foundations has been undermined.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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