Why everything is crashing – Cryptos, Global Stocks, Currencies, Commodities etc.

Why everything is crashing – Cryptos, Global Stocks, Currencies, Commodities etc: As markets cratered on a wave of large sell-offs, investors around the world lost billions of dollars in equities, commodities, and cryptocurrency.

The NASDAQ and S&P 500, two of the world’s main indexes, plummeted drastically by 2.7 percent and 1.9 percent on Friday, respectively, to their lowest levels since March 2020, shortly before the epidemic. The NASDAQ index, which primarily includes tech-related equities, is down 11.9 percent this year, while the wider S&P index, which includes some of the country’s top corporations, is down 7.73 percent.

The FTSE 100 in the United Kingdom sank 2.07% on Friday, while the Chinese Shangai composite index fell -0.91%, the Japanese Nikkei index declined -0.92%, and the Global Dow Jones Index fell -1.45%. The enormous sell-offs spread to the cryptocurrency markets, with Bitcoin plummeting below $36,000 for the first price since July 2021. Ethereum is also down, with the price of the cryptocurrency falling below $2,500 for the first time since April 2021. This year, Bitcoin and Ethereum have lost 21% and 30%, respectively.

The crash we are currently witnessing is the result of a chain of interconnected events that began in March 2020, when Covid-19 lockdowns went into force.

Why did the crash occur?

To comprehend why we are in a bear market, it is necessary to first grasp what caused the bubble. NAIJONLINE says there are three key reasons for the crash we are currently seeing.

Interest Rate – The first and possibly most acute causal aspect is the interest rate. Over the last decade (yes, prior to Covid-19), the western world has maintained an extremely low interest rate regime, flooding the world’s largest economy with cheap money.

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The majority of these inexpensive money found their way into the US and global stock markets, boosting asset values above their intrinsic value. Additionally, inexpensive funds facilitate the development of a habit of relying on financial borrowing to finance investment activity.

The difficulty is that when interest rates are increased, investors are forced to reduce their asset purchases, which has a negative effect on value.

Thus, with inflation reaching 7% two weeks ago, the US Federal Reserve decided enough was enough and doubled down on its plans to raise interest rates in the coming months. Investors are reacting unfavorably to this news, resulting in the present sell-offs.

Helicopter Money – Following the global Covid-19 pandemic that solidified in early 2020, governments worldwide responded with a flurry of economic stimulus programs that injected cheap money into the global economy.

The United States has injected nearly $6 trillion in stimulus packages into the country under President Trump and now Joe Biden, including cash giveaways to American citizens.

While this was intended to restore economic growth during the Covid-19-induced recessions, it had unintended consequences, one of which was inflation.
Another significant side effect was the creation of a retail stock market bubble, which pushed financial asset values to all-time highs as investors overlooked fundamentals in pursuit of capital gains across asset classes.

Inflation – One of the first steps nations did in response to the Covid-19 Pandemic was to close borders and ease travel restrictions. This resulted in a significant logistical bottleneck and a significant gap in demand, pushing businesses to reduce stocks as demand dropped.

This had a significant impact on global supply lines, including ships, air travel, and other modes of transportation that keep global trade effectively in flux. With widespread supply constraints, it was only a matter of time until this had an effect on the prices of products and services.

As countries opened their markets, demand increased slightly but lagged worldwide supplies, resulting in an increase in the inflation rate. At first, central banks around the world believed the inflation was transient, only to realize later that it was persistent and unlikely to abate anytime soon.

To compound things, world leaders put billions of dollars into stimulus packages, some of which increased demand faster than supply could keep up.

Economic Collapse

All of the above-mentioned causative variables result in a market collapse, which is compounded by profit-taking, anxious investors seeking to exit the market, and lenders drawing on their available liquidity.

Investors who profited from the bull market of 2021 are withdrawing funds in droves in order to avoid their winnings being wiped out by the recent sell-offs. As expected, when everyone is profiting, there are more sellers than customers, resulting in lower pricing.

Additionally, we hear that the majority of investors who have invested with fund managers have requested withdrawals in order to minimize further losses in the event of a market meltdown.

Mutual fund managers, ETF managers, and index fund managers are seeing a significant outflow of capital from institutional investors, high net worth individuals, and retail investors fearful of a severe downturn in global markets.Nobody wishes to be the pig in a bull-bear fight.

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Finally, margin lenders that lend money to participants in the stock and cryptocurrency markets require borrowers to show collateral to cover their positions or call back their loans entirely. Additionally, this forces borrowers to sell in order to complete their positions with lenders or repay their loans.

Final Words

What we are currently experiencing is a result of a number of circumstances that began with the bursting of an asset bubble and subsequently raised inflation, causing central banks to hike interest rates, precipitating the current market sell-off. This is why the market is collapsing, and we feel this is only the beginning of a very gloomy period for international stocks and cryptocurrencies investors.

Nigeria appears to be unaffected by the market sell-offs for the moment. Nigerian stocks are at a 13-year high, while the fixed income market continues to offer yields in the double digits. We also face inflationary pressures and have developed a tolerance for the negative real returns.

Perhaps this is an inadvertent blessing, but we will never know. For the time being, Nigerians, particularly the millions of young Nigerians who own overseas equities, would suffer significantly. Some of them have invested their entire lives into financial assets and rely on them for survival.

A prolonged bear market phase with actual returns, rather than the 2x, 3x returns people have grown accustomed to, might have a significant impact on their way of life and source of income.

Until further notice, CASH IS KING!


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