VegaX Flash News Report: April 2022 Market Outlook

VegaX Holdings Flash News Report: April 2022

April 2022 — What’s Driving the Crypto Markets?

Last week, the crypto market suffered from one of the harshest sell-off events of this year. Crypto funds have seen significant outflows as investors liquidated about $134 million worth of their Bitcoin and Ethereum funds, as reported by CoinShares.

What’s propelling the markets?

Inflated economy, inflated fears-

The inflation in the US hit a record high of 8.5% over the year at the end of March. This is the highest inflation ever recorded since 1981. The latest Consumer Price Index (CPI), which measures the price of a basket of goods and services like energy(fuel), food, rent, and commodities rose by 7.9% through February, this is the fastest pace of inflation in the past 40 years. The soaring gas prices as a result of the supply shock from sanctions on Russia have been a major contributor to this trend. Gas prices have gone up by 18.3% and food by 8.8% year over year.

Source: Statista
The graph shows similar kind of sell-off during the taxation week last year ( May 17 week of 2021) Source: Tradingview

The infamous yield curve

The yield curve is a simple plot that showcases the relative yields of two interest rates over time. Economists worldwide compare the relative yields of the 10-year and the 2-year treasury bonds to determine the health of the economy. Under normal circumstances, the yield of bonds with a later maturity is higher, owing to a greater risk assumed for a longer exposure.

The curve inverts every time it drops below 0, with the following areas marked in grey signifying recession. Source: FRED

Tech stocks and crypto

Investors who understand the digital asset industry’s value proposition tend to have a long-term investment horizon, generally speaking. So why the recent panic-selling?

Source: official NDX fact sheet https://indexes.nasdaqomx.com/docs/FS_XNDX.pdf
NDX 10 — Day Source: Arthur Hayes Medium
NDX 30 — Day Source: Arthur Hayes Medium
NDX 90-Day Source: Arthur Hayes Medium

How does all this play out?

The number of variables influencing the market today is unprecedented. Predicting what is going to happen in speculative markets like equity and digital assets at this moment is like predicting the flow of wind in the next hour, which although theoretically possible if every little variable is accounted for, is a tremendous task. Our job however gets easier when we widen our scope to longer timeframes.

Inflation:

Rising inflation affects the purchasing power of investors, which in turn affects their saving and investment patterns directly. The fed has set plans to pace up the rate of interest rate hikes to 50 basis points for the coming months.

An inverted yield curve is not necessarily bearish for the market-

Source: QVM Invest

A lesson from tech stocks:

A pessimistic macroeconomic outlook like rising inflation, worsening global liquidity, and falling economic growth (due to price run-ups in commodities) are not favorable to tech stocks. If the correlation between tech stocks and digital assets is believed to hold, if not get stronger, the crypto industry is likely to bottom out before big tech, but should also recover ahead of risk-on equities.

Q2 Conclusion thus far — In crypto we trust

Governments globally have seemingly had an unlimited supply of money, it’s just a matter of firing up the money printer whenever needed. That is why the purchasing power and returns from savings accounts have eroded at an astounding rate in the recent past.

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