Liquidity Trap

Stagflation, lack of economic growth and inflation is one of the topics that lead to thousands of conversations today. If there is no growth in the economy, the labor market will suffer and prices should go down. But we are suffering rising inflation, the economy could be harmed by the worst from both worlds. So let’s go deeper into the origins of the problem.

At the time of the Roman Empire, inflation was defined as the change in the face value of a coin containing the same amount of gold. Therefore prices rose, because they wanted to accumulate as much gold as possible and the value it should have was already worthless. They focused on what really mattered: how much gold they had, which allowed them to buy things.

Here is where we have to talk about the liquidity trap. You can change the “official” value of an asset. But people keep on accumulating what they value as real. The cool thing is that it may be valuable for some time. But it will probably end up being a problem. Similar to what we have now. And Bitcoin may be the asset to be accumulated.

The FED decided to raise the interest rates just a little bit, 0.25%. This means that we will have enough liquidity to pump the crypto market. At least before they decide to drain the market again. Boom and crash cycles sponsored by the Federal Reserve’s Money Printing Machine.

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Correlation does not mean causation. But it seems that the lack of fear of an unpredictable interest rate hike is helping BTC to break a short-term resistance. From a fundamental perspective, expectations are centered on the accumulation of hard assets and they are being fulfilled. Now that confidence in the dollar is waning, solid assets like Bitcoin will potentially be in a better position to protect us from inflation.

Onchain, the currency became “lucrative” for a significant group of Bitcoin investors.

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As we can see, the trend of losing less money every time we see a dip continues to print higher lows on a sustainable basis. Less and less money is lost when the market falls. But so far it struggles to print new highs.

All the central bankers of the world want the same thing as the Roman emperors: to inflate the value of their currency so that people think we are richer. But we are not. That is why we will continue to report on the cryptocurrency market from a macro and onchain perspective.

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