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HEALTH, WEALTH, AND HAPPINESS

May 19, 2022

"Innovations in science and technology are the engines of the 21st-century economy; if you care about the wealth and health of your nation tomorrow, then you'd better rethink how you allocate taxes to fund science."

- Neil deGrasse Tyson

G7 Countries Urge Swift Regulation of Crypto Assets(Reuters): As we predicted, regulators are finally getting off their backsides, after last week's meltdown of TerraUSD, urging "swift and comprehensive regulation of cryptocurrencies."

As we predicted, stablecoins will likely be the first category of crypto assets that regulators will set in their sights.

Now, a further prediction: those stablecoins backed by real assets (fully-collateralized, like Tether and UDSC) will likely be in the best position; those that are partially collateralized or algorithmic (like Dai) will be in the crosshairs.

Investor takeaway: Regulation is finally coming. That's why the smart money is flowing into fully-collateralized stablecoins (see chart below).

That great sucking sound you hear is money moving out of other stablecoins and into USDC, which has worked hard to build investor trust as a fully-collateralized stablecoin. Here's a look at inflows over the last month: note the great surge into USDC, coinciding with the meltdown of TerraUSD.

Meanwhile, Tether, which is also fully-collateralized but has had to fend off controversy on its cash reserves, has seen investors cashing out ($83B to $74B):

Finally, Dai, which is partially-collateralized and partially-algorithmic, has seen a steep drop from $9B to $6.5B:

Investor takeaway: Even in crypto, trust reigns supreme. Long-term investors will move their money into the platforms with the most trust -- and regulators are likely to favor them as well.

Before investing, ask yourself: how is this crypto project working to build trust with its users?

Of course, the numbers are not adjusted for inflation, which as we know has been quite substantial lately. Using an inflation calculator we can quickly determine that $2.3 trillion dollars in 2008 would be worth $3.09 trillion today.

This means we've just wiped out double the amount of value from that index that we did during the great financial crisis. Using the same formula, we're now almost exactly on the level of the dot-com crash.

What happened?

In my mind, the 2022 market crash is clearly the fault of the Federal Reserve and other central banks around the globe, who have been printing excessive amounts of money since 2008 and went into overdrive in order to sustain the economy through the forced lockdowns and mass welfare of the COVID-19 era.

Here we can see the Fed's balance sheet growing 900% between August 2008 and today as it repeatedly pumped the market full of liquidity, causing mass inflation in market prices in what some would consider the mother of all asset bubbles.

The result of all this new money in the market has indeed been good for businesses and supported growth during this time frame, but now that the Fed is pulling back that liquidity and aggressively raising interest rates in order to fight self-inflicted inflation, the bubble has burst once again.

Fear & greed

So the cycle continues, as it has played out many times over the last few centuries. People throw caution to the wind and give in to euphoria (FOMO) when prices are skyrocketing, then in a flash rush for the exit once it becomes clear that the growth rate is unsustainable and things have gotten out of hand.

The markets tend to take the stairway on the way up and the elevator on the way down, and in some cases, they take the window.

What really gets me though is how many people know in their hearts that the best time to invest is right after a crash, but when the time comes, they are too scared to pull the trigger.

Fear and greed are powerful emotions and they all too often get in the way of rational decision-making.

Yes, the market might go lower, but that's always a possibility. However, time in the market is better than timing the market, and long-term investors who don't get afraid and re-invest when things are sour are frequently the most handsomely rewarded.

Over time, financial assets have a tendency to rise while fiat money losses its value. That's not an accident, it's by design.

It's not even a secret. Policymakers are very transparent about their inflation targets, which are never below zero.

However, when inflation does get excessive, it's very bad for politicians and often ends up forced back down to a (needed) manageable level, causing short-term pain for the masses. 

Sincerely, 

Best regards,

Mati Greenspan

Analysis, Advisory, Money Management

Bitcoin Market Journal is a daily newsletter that makes you a better crypto investor. It is created by Evamarie Augustine, Charles Bovaird, Mati Greenspan, John Hargrave, and Alexandre Lores.

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