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A Guide to Investing in Crypto Assets Amidst the Fed_s Rate Hike Cycle
2022-03-24, 10:27
1. How the Fed’s interest rate hike will affect risky assets such as crypto
The global economy will face many challenges in 2022, with the pandemic still ongoing casting a shadow over the economic recovery, the conflict between Russia and Ukraine erupting into war now, and US inflation hitting a 40-year high are many of the factors which may create hindrances to the global economy. Central banks e.g USA’s Federal Reserve, the European Central Bank and the Bank of Canada, have abandoned loose monetary policy and adopted measures to tighten liquidity by raising interest rates and scaling down to curb high inflation.
According to the Fed's interest rate meeting schedule, there will be eight meetings in 2022 this year, with six-week intervals and possibly ad hoc meetings depending on market conditions. The most recent interest rate resolution will be announced on 17 March.
(Data source: FOMC public information)
According to the Fed's interest rate decision and policy statement announced on March 17, the Fed increased the interest rate by 0.25%. According to Powell, interest rates will be raised in each of the remaining six meetings this year, and the balance sheet will be reduced as soon as May, with interest rates expected to remain between 2.0% and 2.5% by early 2023.
As early as December last year, the Federal Reserve have been trying to guide the market through the volatile period by increasing interest rates, many financial. Since the beginning of this year, bitcoin has fallen by 17.22% from its high point, the Nasdaq Composite Index has fallen by 18.22%, and other markets around the world have all recorded declines.
(Date source: Google Finance)
It is clear that the global financial market have fluctuated under the possibility of raising interest rates, and the global stock market and other asset markets such as crypto assets have generally fallen. Now that the Federal Reserve has officially decided to increase interest rates and the plan to reduce its balance sheet at the same time, it is a matter of great concern to investors as to what impact this will have on the market, especially for crypto.
As early as December last year, the Federal Reserve have been trying to guide the market through the volatile period by increasing interest rates, many financial. Since the beginning of this year, bitcoin has fallen by 17.22% from its high point, the Nasdaq Composite Index has fallen by 18.22%, and other markets around the world have all recorded declines.
(Date source: Google Finance)
It is clear that the global financial market have fluctuated under the possibility of raising interest rates, and the global stock market and other asset markets such as crypto assets have generally fallen. Now that the Federal Reserve has officially decided to increase interest rates and the plan to reduce its balance sheet at the same time, it is a matter of great concern to investors as to what impact this will have on the market, especially for crypto.
First, it is common economic theory that high interest rate markets and tightening policies are very bad for risk assets. In a low interest rate environment, investors will obtain funds at relatively very low cost, and increase leverage at lower consideration to obtain higher risky returns, thereby driving up the price of risky assets. As interest rates increase and market liquidity is drained, asset bubbles previously pushed up by leverage will be burst leading investors to be more risk-averse and funds flowing to less volatile assets. Therefore emerging assets such as crypto may be severely affected especially as this market has little oversight and regulation.
With the Fed's first rate hike on 17 March, it is widely believed that the long cycle, a long cycle of 6-7 rate over 2 years with final rates at 2.5%-3%, has just begun and is accompanied by an even more panicked market process of balance sheet reduction.
According to Dan Raju, CEO of brokerage platform Tradier, "the fact that the Fed has indicated multiple rate hikes means we are in for a year of continued volatility".
As mentioned by Zhang Lei, founder of High Tide Capital, in his book Value, "every market bull market originates from an easing of liquidity and ends in a tightening of liquidity". It is foreseeable that the crypto asset trading market will continue its downtrend of shocks for the next year or so to last, with short-term traders facing risks that cannot be ignored and long-term investors needing more time to wait for a better entry point.
Secondly, bitcoin is getting closer to the next halving cycle in its reward system. Since the creation of bitcoin, it has undergone 3 halvings already, namely: the first halving: 28 November 2012, the second halving: 10 July 2016, and the third halving: 12 May 2020. Other than halving bitcoin’s reward, it has also been accompanied by a cyclical exchange of bottoms and tops in the crypto market. The trends in the crypto market, which has been repeated 3 times, is now the most common consensus in the market. History does not simply repeat itself, but it is strikingly similar, with the market hype on the halving theme six months to a year in advance of each halving, market sentiment rises, trading activity rises and the market is gradually crowded into a bull market. As the halving ends, especially in the second 2-3 years, the market will gradually enter a bear market, with the BTC market value falling by around 80% from its high.
(Data Source: https://bitcoinblockhalf.com/ )
(Data Source: Coinmarketcap)
Figure 2: Contract trading vs. Leveraged Trading
According to Dan Raju, CEO of brokerage platform Tradier, "the fact that the Fed has indicated multiple rate hikes means we are in for a year of continued volatility".
As mentioned by Zhang Lei, founder of High Tide Capital, in his book Value, "every market bull market originates from an easing of liquidity and ends in a tightening of liquidity". It is foreseeable that the crypto asset trading market will continue its downtrend of shocks for the next year or so to last, with short-term traders facing risks that cannot be ignored and long-term investors needing more time to wait for a better entry point.
Secondly, bitcoin is getting closer to the next halving cycle in its reward system. Since the creation of bitcoin, it has undergone 3 halvings already, namely: the first halving: 28 November 2012, the second halving: 10 July 2016, and the third halving: 12 May 2020. Other than halving bitcoin’s reward, it has also been accompanied by a cyclical exchange of bottoms and tops in the crypto market. The trends in the crypto market, which has been repeated 3 times, is now the most common consensus in the market. History does not simply repeat itself, but it is strikingly similar, with the market hype on the halving theme six months to a year in advance of each halving, market sentiment rises, trading activity rises and the market is gradually crowded into a bull market. As the halving ends, especially in the second 2-3 years, the market will gradually enter a bear market, with the BTC market value falling by around 80% from its high.
(Data Source: https://bitcoinblockhalf.com/ )
(Data Source: Coinmarketcap)
Under the externalities of rising global interest rates and tightening liquidity, coupled with the cyclical bull-bear transition at the BTC halving point and technical bearishness, the next 1-2 years may be a testing time for investors' patience and wisdom. Of course, during this current cycle, many new applications such as the metaverse, NFT, web 3.0, etc have been created so it remains to be seen if history will repeat itself or if the super cycle has emerged.
2. Under the interest rate hike cycle, how to choose a suitable investment tool in the crypto market
Before we start explaining the investment tools, let’s briefly sort out the logic. The entire market is constantly changing, and the economy follows a cyclical cycle of recovery, boom, bust, and recession. Only by understanding the current stage and being familiar with the properties of investment tools can we have certain coping strategies to ensure stable and profitable investment.
To make it easier to understand the stage we are in, let's first introduce a concept - the Merrill Lynch Clock. The Merrill Lynch Clock is a set of asset allocation theories put forward by Merrill Lynch, which mainly describes the corresponding investment strategies in different economic cycles. In other words, it tells investors "what stage they are currently in and how to allocate their assets at this stage".
Figure 1: Spot Trading VS Contract Trading
2. Under the interest rate hike cycle, how to choose a suitable investment tool in the crypto market
Before we start explaining the investment tools, let’s briefly sort out the logic. The entire market is constantly changing, and the economy follows a cyclical cycle of recovery, boom, bust, and recession. Only by understanding the current stage and being familiar with the properties of investment tools can we have certain coping strategies to ensure stable and profitable investment.
To make it easier to understand the stage we are in, let's first introduce a concept - the Merrill Lynch Clock. The Merrill Lynch Clock is a set of asset allocation theories put forward by Merrill Lynch, which mainly describes the corresponding investment strategies in different economic cycles. In other words, it tells investors "what stage they are currently in and how to allocate their assets at this stage".
According to the economic growth rate (GDP) and inflation rate (CPI), the Merrill Lynch clock divides the economic cycle into four stages: recovery, overheating, stagflation, and recession. As the economy cycles through 4 phases, the mix of asset allocations also changes.
According to Hong Hao, Managing Director and Head of Research at BOCOM International, "the Fed's 0.25% basis point rate hike is a drop in the bucket for high inflation in the US, and there are data suggesting that the US economy is heading towards a stagflationary phase". This phase is characterized by the beginning of a decline in economic growth, but price levels remain high. The investment allocation is prioritized as: cash > commodities > bonds > equities. In simple terms, risk assets have fallen sharply during this phase and it is predominantly important to hold cash or hold shorted assets.
In order to have a deeper understanding of common investment products in the crypto market, product attributes of spot, leverage, and contracts, risk appetite, and best applicable scenarios, we have made a simple comparison to help you make better investment decisions. The details are as follows:
According to Hong Hao, Managing Director and Head of Research at BOCOM International, "the Fed's 0.25% basis point rate hike is a drop in the bucket for high inflation in the US, and there are data suggesting that the US economy is heading towards a stagflationary phase". This phase is characterized by the beginning of a decline in economic growth, but price levels remain high. The investment allocation is prioritized as: cash > commodities > bonds > equities. In simple terms, risk assets have fallen sharply during this phase and it is predominantly important to hold cash or hold shorted assets.
In order to have a deeper understanding of common investment products in the crypto market, product attributes of spot, leverage, and contracts, risk appetite, and best applicable scenarios, we have made a simple comparison to help you make better investment decisions. The details are as follows:
Figure 1: Spot Trading VS Contract Trading
The above analysis of both products shows that both contract trading and leveraged trading can meet the needs of bear markets for shorting and preserving value, and both can improve the efficiency of capital use through leverage. However, contract trading is more popular among crypto asset investors in terms of product experience, such as no borrowing and returning steps, the choice of product types U-based perpetual contracts, coin-based perpetual contracts and delivery contracts, and the simpler operation process.
3. Gate.io Contracts - How the platform won users over from the launch of ApeCoin
3. Gate.io Contracts - How the platform won users over from the launch of ApeCoin
What’s ApeCoin?
ApeCoin is the most popular crypto asset at the moment. To understand ApeCoin, we must start with Yuga Labs. Yuga Labs is the parent company of the NFT project "The Boring Ape" (BAYC). Since its launch in April last year, BAYC has rapidly grown into the most valuable NFT project in the NFT market. The cheapest of the 10,000 "boring ape" NFTs sells for around $240,000. The startup is valued at as much as $5 billion and is seeking a new round of financing.
ApeCoin” tokens are issued by an entity called ApeCoin DAO, which consists of council members associated with NFT projects. Members include Reddit co-founder Alexis Ohanian, FTX’s Amy Wu, Sound Ventures’ Maaria Bajwa, Animoca’s Yat Dean Steinbeck of Siu and Horizen Labs.
ApeCoin is undoubtedly the most popular project at the moment, bringing investors more reverie about NFT. Its tokens have also performed amazingly in the secondary market, with an increase of up to 150% since the low point, and the circulating market value is as high as 2 billion US dollars.
How platforms are winning users over from ApeCoin's launch of the gate.io contract.
First of all, high-quality trending projects are launched ASAP to meet the demand of investors. In the crypto market, it is vital that platforms launch and list high-quality popular projects. Whoever discovers high-quality projects first can create opportunities to find new users and have the advantage in making a greater return on their investment at a lower price. Just like venture capital, angel investors who invest in unicorn companies must make more money than investors in series A and B when the company goes public. The user’s word-of-mouth accumulated by gate.io in project screening and online is also vital in the industry, and the gate.io contract still continues its advantages in this regard. The price of ApeCoin was only 6U when it was launched on the contract platform. As of 4:26 pm on March 18, the current price was 14.8U, an increase of 146.7%. It has brought huge returns to the early investment users of the platform.
Secondly, low order spreads, strong depth, high liquidity, and no slippage. Users of crypto asset contracts are extremely critical of the liquidity of the trading pairs on the platform, as it is a function of the speed of the transaction, the opportunity to take advantage of it and the loss of slippage. Thanks to the gate.io contracts team, the aggregation engine has developed up to 100,000 trades per second with a minimum latency of 5 milliseconds. Most of the world's top 10 market makers have established partnerships with gate.io, providing liquidity protection for platform users.
And with nine years of experience in the industry, security and stability have always been consistent. As one of the earliest crypto asset trading platforms in the industry, gate.io has been deeply involved in the industry for nine years and has always provided security and stability to protect the assets of its users, as well as professional services to meet the needs of crypto asset enthusiasts.
With the Fed's interest rate hike, and the shrinking of the balance sheet is also on the agenda. How much will it ultimately affect the crypto market? We can only make forward-looking predictions based on some common sense, but we don’t really know where the market will really go. However, an asset allocation based on basic investment theory and in-depth research into investment products will always give you a better chance of winning in the unpredictable market, and a really good and reliable platform and tools are the best tools to make decisions in the market.
Disclaimers:
For information purposes only, such information provided herein does not constitute any investment advice and is not responsible for any investment you may make. Technical analysis, market judgement, trading tips, trader sharing and other content may involve potential risks, investment variables and uncertainties, and this article does not provide or imply any guaranteed return opportunities.
ApeCoin is the most popular crypto asset at the moment. To understand ApeCoin, we must start with Yuga Labs. Yuga Labs is the parent company of the NFT project "The Boring Ape" (BAYC). Since its launch in April last year, BAYC has rapidly grown into the most valuable NFT project in the NFT market. The cheapest of the 10,000 "boring ape" NFTs sells for around $240,000. The startup is valued at as much as $5 billion and is seeking a new round of financing.
ApeCoin” tokens are issued by an entity called ApeCoin DAO, which consists of council members associated with NFT projects. Members include Reddit co-founder Alexis Ohanian, FTX’s Amy Wu, Sound Ventures’ Maaria Bajwa, Animoca’s Yat Dean Steinbeck of Siu and Horizen Labs.
ApeCoin is undoubtedly the most popular project at the moment, bringing investors more reverie about NFT. Its tokens have also performed amazingly in the secondary market, with an increase of up to 150% since the low point, and the circulating market value is as high as 2 billion US dollars.
How platforms are winning users over from ApeCoin's launch of the gate.io contract.
First of all, high-quality trending projects are launched ASAP to meet the demand of investors. In the crypto market, it is vital that platforms launch and list high-quality popular projects. Whoever discovers high-quality projects first can create opportunities to find new users and have the advantage in making a greater return on their investment at a lower price. Just like venture capital, angel investors who invest in unicorn companies must make more money than investors in series A and B when the company goes public. The user’s word-of-mouth accumulated by gate.io in project screening and online is also vital in the industry, and the gate.io contract still continues its advantages in this regard. The price of ApeCoin was only 6U when it was launched on the contract platform. As of 4:26 pm on March 18, the current price was 14.8U, an increase of 146.7%. It has brought huge returns to the early investment users of the platform.
Secondly, low order spreads, strong depth, high liquidity, and no slippage. Users of crypto asset contracts are extremely critical of the liquidity of the trading pairs on the platform, as it is a function of the speed of the transaction, the opportunity to take advantage of it and the loss of slippage. Thanks to the gate.io contracts team, the aggregation engine has developed up to 100,000 trades per second with a minimum latency of 5 milliseconds. Most of the world's top 10 market makers have established partnerships with gate.io, providing liquidity protection for platform users.
And with nine years of experience in the industry, security and stability have always been consistent. As one of the earliest crypto asset trading platforms in the industry, gate.io has been deeply involved in the industry for nine years and has always provided security and stability to protect the assets of its users, as well as professional services to meet the needs of crypto asset enthusiasts.
With the Fed's interest rate hike, and the shrinking of the balance sheet is also on the agenda. How much will it ultimately affect the crypto market? We can only make forward-looking predictions based on some common sense, but we don’t really know where the market will really go. However, an asset allocation based on basic investment theory and in-depth research into investment products will always give you a better chance of winning in the unpredictable market, and a really good and reliable platform and tools are the best tools to make decisions in the market.
Disclaimers:
For information purposes only, such information provided herein does not constitute any investment advice and is not responsible for any investment you may make. Technical analysis, market judgement, trading tips, trader sharing and other content may involve potential risks, investment variables and uncertainties, and this article does not provide or imply any guaranteed return opportunities.
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