Interest Rates, The Global Economy & Crypto

4 mins read

The band-aids are coming out and getting slapped onto every war wound the US has for its economy. Interest rates are up again with a 0.75% hike as announced this week by Jerome Powell, Chairman of the Federal Reserve. For the most part, this change is all that the US Government has in the economic first aid box. 

Over the years, we have seen other complex terms and agendas such as quantitative easing, current interest rate hikes, printing more money, and shuffling budgets around like a roulette table gambler, all seeking economic progress.

With this week's interest rate rise, the United States and the following economic train of flow through to central banks are feeling the noose cinch tighter, hoping for progress. 

You can read The Federal Reserve press release on this change here:

https://www.federalreserve.gov/newsevents/pressreleases/monetary20220921a1.htm

Federal Reserve Chairman, Jerome Powell made statements yesterday, "Price stability is the bedrock of our economy" and "the goal is to reduce inflation to 2%". You can watch the statement from the Federal Reserve chair Jerome Powell here:

https://www.youtube.com/watch?v=wGpv9p4aDN4

What does this mean when you frequently hear "percentage" and "basis" point changes in economics? As a quick explainer, one basis point is 1/100th of a percentage point. One percentage point is 100 basis points and a 1% change in whatever direction.

What is the Goal in Raising Interest Rates?

In theory, when central banks raise interest rates, borrowing money costs go up, and it should curb situations where prices continue to go up. Life should continue, but the rate of capitalism and expansion of "more more more", should slow down, creating stability. It is a slippery slope because by raising interest rates, the world is hurting everyone's cashflow, causing them to pay more for loans, but hoping to benefit everyone with stability and keeping the base price of everything down.

Many agree that we have the climate crisis, global wars, and now "the inflation crisis". You are likely feeling the effects of costs going up already in food, gas and more while many do not have added revenue to compensate for this situation.

Where is Inflation now, and how do you Calculate it? 

You can compare numbers here with worldbank.org to look at Inflation, yet it takes time to gather numbers and put a stamp on this information with accuracy.

https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?end=2021&start=2016

With a sharp spike in these inflation measurements from 1.9% to 3.4% globally, we can ponder this effect on everything around us. Other statistics have said that CPI (Consumer Price Index), from September of 2021 to now, CPI sits more realistically at a horrifying 6.3% or more.

https://www.bls.gov/cpi/

How do Inflation and economic conditions affect Bitcoin and Crypto?

If you look at the birth of crypto and its position now, they are two different things. For the first ten years of Bitcoin's existence, it mainly was speculative use of the grandfather of all digital assets. Day-to-day use did not exist. Now, you can buy a coffee with BTC, yet most would never do this as it seems a waste of profit potential. Looking back at Satoshi Nakamoto's whitepaper "Bitcoin: A Peer to Peer Electronic Cash System," we have never had BTC farther from that design or function.

Perhaps a re-read of the whitepaper is all due to align our perspective.

https://bitcoin.modeapp.com/bitcoin-white-paper.pdf

With lower trading volume or activity in digital assets, the paper hands of the blockchain industry tend to sell off much quicker than wise traditional investors who will sit on equities for years. Daily trading volume of Bitcon, USDT and other stable coins, seems stable compared to this years market. Today Bitcoin traded $44 Billion in volume, USDT traded $52 Billion and Ethereum at $19 Billion, which are typically the top three traded digital assets.

Currently, with a weak economy and less cash flow, investments will suffer, including purchasing or holding cryptocurrencies. You may see online that many in the blockchain world are selling off assets, their prized NFTs, all to keep heads above water. This trend means that assets are being sold off at low valuations, potentially at losses. The buyers are in all estimates, those who are stable financially.

The rich get richer, and the poor get poorer. We have seen this happen before with traditional finance decade by decade. Recessions wash out the general public who can't keep up. "Buy when there is blood in the streets, even if it is your own" is a famous statement by Baron Rothchild. The sentiment seems inapplicable to most of the world as the 1% are typically those who can follow this mantra.

The entire perspective is not all doom and gloom though. "When in doubt, zoom out". You can gain great perspective about the future of Bitcoin by looking at a long term logarithmic chart. Compare expected market highs and lows. You will see massive pressure on the price of Bitcoin to fall back into this charts projection channels with a price increase at some point. Some projections from the community online have called for $17K BTC and other optimists have called for $40K BTC. 

https://www.lookintobitcoin.com/charts/bitcoin-logarithmic-growth-curve/

Yet we watch to see if the world and the digital assets community can rise out of the ashes of traditional finance like a Pheonix of hope. With optimism, we will watch the end of September peeking around the corner to look at a potentially better October for the world and everyone's pockets.