How does the market operate in the aftermath of inflation?

Such a decline does not deserve our attention too much, instead, another thing that deserves our attention: that is, the United States recently announced an inflation index of more than 4% —- This data greatly exceeds the Fed’s inflation target of 2%, but also greatly unexpected by the market, thus triggering market concerns about the Fed’s interest rate hike, so the news, U.S. stocks plunged.

How does the market operate in the aftermath of inflation?

On May 13, the market suddenly came out with negative news: first, the U.S. Department of Justice and the IRS will launch an investigation into Cryptocurrency; second, the GBTC negative premium expanded to 20.48%, a new record low. I don’t know if it was affected by these news, the market started to fall sharply at that time, but I still think such a fall is a good thing. I hope the market can calm down in this fall, and investors can sort themselves out in this fall to better meet the next second half.

Such a decline does not deserve our attention too much, instead, another thing that deserves our attention: that is, the United States recently announced an inflation index of more than 4% —- This data greatly exceeded the Federal Reserve set a 2% inflation target, but also greatly exceeded the market’s expectations, thus triggering market concerns about the Fed’s interest rate hikes, so the news, U.S. stocks plunged.

Not only the United States, China’s recent regular state meeting also began to focus on the need to deal with commodity price increases to prepare, the next series of measures introduced in China also see the country is consciously tightening the liquidity of the market to prevent inflation out of control. All of this data makes one thing clear: the current rate of inflation has far exceeded what the market once predicted, and if left unchecked, inflation will have serious side effects on the economy.

What does this have to do with us digital currency investors? The relationship is very close, because the next direction of the overall digital currency market is related to the development of some projects within the market (such as the Uniswap Layer 2 extension and Ether’s EIP1559 that I mentioned yesterday), but also to the extent of currency deflation. The current round of bull market bubble in the end can blow how big now in my opinion the next key factor in the degree of water release, and the degree of water release is most fundamentally determined by the U.S. government, and the U.S. government so far publicly stated that will affect the water release is inflation and economic trends.

So after the release of the U.S. inflation index, what will the U.S. government do next? We seem to be able to see a thing or two from the most common logic. That is, despite the extremely embarrassing situation, I am afraid that the U.S. government does not dare to lightly talk about policy tightening. On Weibo, Dr. Wenhong Zhang recently said in a video that before the outbreak in India, global expectations for the control of the epidemic were still relatively optimistic, and after this, expectations are once again pessimistic – I am afraid that full liberalization is unlikely in the short term. If the global can not resume normal passage, the economy can not open the meridian, the development of the economy can not make people optimistic, so in such a premise, if the government tightens the policy, stifle the release of water, then the economy may deteriorate again. And for the United States, if tightened policy, not only the economy will deteriorate again, but also the stock market will plummet. And the stock market is one of the few bright spots in the current U.S. economy, so the risk of tightening policy would be very high.

So I guess, the U.S. government will face an awkward dilemma: on the one hand, the economy is still weak; on the other hand, inflation is soaring. In this situation, the two compartments, choose the lighter —- or will continue to release water and endure inflation. Then we will see a picture of everything skyrocketing: up to the point where we can’t believe it today. So is it possible that the U.S. government will come down hard and start controlling it?

I think this possibility can not be ruled out, and once the U.S. government does so, the consequences will be a total market crash. In order to cope with the above two possible situations, I suggest that investors in the next market can take a more compromise approach: leave part of the assets have been holding, until the U.S. government really take tightening policy and then liquidate, while the other part of the bull market according to the laws of the past in the judgment of the market is close to the predicted high point when the batch of liquidation.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/how-does-the-market-operate-in-the-aftermath-of-inflation/
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