Inflation, Crypto and Bear Market

About to close the trading week in the traditional markets, we see how the declines are resumed in all scenarios. Undoubtedly, the turning point of this period has been the inflation data in the USA, higher than expected.

No… you have not made the wrong post… we are talking about the cryptoactive market. And it is that macro data also influences. It is the price of an evolution of the market and more specifically of the investor profile where we are seeing how the affectation of macro news gains in importance, and not because of the news itself, but because of the measures that it will entail by the FED and above all, its impact on market liquidity

Is the world economy heading towards a contraction scenario?

 This is the question that grips the majority of investors on the planet, and if we seek an answer from a technical point of view, without a doubt it is an affirmative answer.

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Not in vain we can see how the trend of world indices does not recover. Once again… this is a fact that is also very relevant for digital assets

The post-merge scenario

Another of the factors highlighted this week, and exclusively limited to the crypto ecosystem, is the so-called Ethereum Merge. The process behind this new version of the Blockchain will have a profound impact on the trading dynamics on the ETH network.

Going beyond the operational improvements in the network from different points (energy consumption, efficiency, speed, costs…) we can see how from a technical point of view we must make an evaluation and diagnosis of the impact of what is surely one of the events most important of the year

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We can quickly see how the market has made an overweight movement on ETH in recent months, in which the Merge event that we have commented on has had a great weight. Therefore, a certain correction derived from the taking of profits by some investors is to be expected, when the time has come to verify that the migration to Ethereum 2.0 has been carried out without problems.

The role of the miners

On the other hand, we have to analyze in detail the position of the miners in the network. Projects whose business model has been dismantled with this modification, and which must choose between desisting or adapting

It must be remembered that the miner is ultimately the infrastructure of the network, therefore a main agent when it comes to sizing its capacity to confirm transactions (something that, by the way, will be significantly increased with the new proposal)

The merge effect in the DeFi ecosystem

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But the Merge has not only had an effect on the network directly involved, but the entire Decentralized Finance ecosystem has experienced an upward movement, in which we could glimpse some influence of this change in the main DeFi network, which is Ethereum.

The impact of macro data

As we have commented, during this week the level of correlation that the cryptoactive markets are reaching with the traditional market has been palpable, seeing how very direct data of the economic evolution in the USA, such as the IPC, caused movements of some consideration in the digital asset market

And the reason is very simple… the problem is not that the data deviates from the forecasts. Although it is true that an increase in prices directly reduces disposable income, and this has an impact on investments and savings

The problem is that the market discounts possible future actions by the Federal Reserve in the face of worse-than-expected data

Recalling Jerome Powell’s statements in Jackson Hole, in which it seems that he has already assumed that his actions will cause dramatic effects, it is very clear that the FED’s pulse is not going to shake, applying that forceful policy that It can have a great impact at first but can be beneficial in the long term.

The prospect of a further tightening of monetary policy conditions is not to the liking of investors, whether they are digital or not… it is clear. And it is shown by the decline in the cryptoactive market coinciding with the data from the IPC USA

The simple question we must ask ourselves is:

To what extent does a fatal inflation data affect the value of the crypto assets that I have in my portfolio?

Plain and simple: none

Always remember the difference we establish between value and price

Therefore, it is to be expected that the situation will normalize and we will see in prices a tendency to recover the underlying technical movement.

What can we do in this scenario?

As always, it is a difficult question to answer because it will mainly depend on two main factors

  • The investment time horizon of the investor in question
  • Your risk profile

We can articulate different answers, but if we had to give some simple and straightforward generic indications, they would be:

  • This is not the time to try to win the first dollar of the uptrend, because it can be much more expensive than you imagine
  • Progressive market entry strategies through partial purchases can be very interesting at this time

Do not try to win the first dollar of the uptrend when the market falls, because it is very likely that you will lose the first dollar of the continuation of the bear market.