Are rate hikes enough to reduce prices? Not likely. Inflation continues to worsen and the reversal of global power relations continues to signal bitcoin’s arrival.
The ECB pulls out the printing press
Eleven years later, the ECB raised its key rate from 0% to 0.50%. Christine Lagarde even assured that the rates will continue to rise “as long as it takes”.
However, debt purchases are unlikely to resume in a situation “deterioration in funding conditions”. In other words, the ECB will print whatever it takes to prevent Italian public debt borrowing rates from falling.
But Italian rates are already going up. In question, the government of the former president of the ECB, Mario Draghi, fell. Italy will hold its 20th legislative election in 33 years on September 25.
Meanwhile, Italy’s 10-year interest rate has risen above 4%, the highest rate since the European debt crisis in 2014. Knowing that Italy’s debt is almost a quarter of the euro area’s debt euro…
ECB will therefore intervene so that the startup can continue to roll over its debt. On the other hand, rates for households and businesses will rise. What is happening in the United States is very revealing in this regard.
The mortgage rate over 30 years has risen to 5.5%. As a result, monthly drafts are 45% higher than last year. This also means that the borrowing capacity of people who want to buy a house has greatly decreased.
For example, borrowing capacity is 33% lower between a rate of 2% or 5.5% over thirty years. In this case, real estate prices have no choice but to fall by 33%.
(We cannot divide an apartment in two forever to sell smaller properties but their price per square meter does not fall…).
In summary, the increase in the amount of money in the economy will be delayed since approximately 60% of the money supply comes from mortgages. This is the effect central banks are looking for. The reduction in the amount of money injected into the economy will weigh on aggregate demand, and therefore inflation.
Two things must now be said. First, will governments expand their deficits further? In that case, demand and therefore inflation may not slow down… Well, probably since the Italian Minister of Economy has just announced 13.3 billion euros in energy vouchers. Same strategy in France.
Second, Christine Lagarde said it: “Much of inflation is caused by factors central bankers cannot control.”
One of those factors is that “The war in Ukraine has driven up energy and food prices”, she said on the ECB’s blog. In fact, the price of gas for nitrogen fertilizers has almost tripled. This bodes very badly for food inflation in the coming months.
The question we can ask ourselves is therefore the following: Will the rise in rates encourage Russia to offer more gas to the European market? Not really. Only a peace deal could prompt the Kremlin to reopen the floodgates. Maybe.
On the other hand, the issue of oil remains. The fact that Russia has reduced its production should not be the tree that hides the forest. We have probably passed peak oil in 2019. Production will now look like an undulating plateau, before falling faster and faster…
In other words, raising rates is not necessarily enough to lower prices. If you don’t raise them very high, which will lead to recession. Truth be told, we are already in recession. It’s running out of gas…
All this to say that the cocktail (recession + rate rise) will cause the stock market to fall and that the tightening of the ECB’s monetary policy may prove to be ineffective against inflation.
So where to put your money? In what is essentially the most secure and liquid store of value in the world: bitcoin, period.
Speaking of the central bank, the FED should also raise its key rate on Wednesday. A further increase of 0.75% is likely. Or a prime rate of almost 2%.
Therefore, it will be expected that the EUR/USD exchange rate will continue to fall and contribute to inflation since the raw materials we export are denominated in dollars. However, if the Russian Foreign Minister is telling the truth, a decline in the euro could be over. Mr. Lavrov was not in the lace before the 22 States of the Arab League this Monday, June 25:
“We are at the beginning of very serious changes […]. Many countries are considering settling their trade in a currency other than the dollar. More and more countries are moving towards using their national currency. […] Our trade [avec la ligue arabe] a significant increase. They reached $20 billion. Maybe next time we count in another currency, not dollars. »
We have never been closer to the arrival of bitcoin as an international reserve currency. Stateless, uncensorable, valueless and freely transferable, bitcoin sports all the attributes necessary to impose itself in the emerging multipolar world.
Bitcoin ambassador Samson Mow, former CTO at Blockstream, revealed in early July that the Saudis are interested. Petrobitcoin…
Currently, BTC/USD is struggling to clear $24,000, but GlassNode is becoming more bullish.
Weekly Analysis Summary On-Chain by GlassNode
analysis On-Chain it’s not a crystal ball. There is probably no better indicator than the simple evolution of detecting the number of transactions a bull run. Furthermore, note that the volumes always follow an exponential path:
Having said that, the intuition of the GlassNode experienced analysts is certainly not without interest for traders.
“Near-term momentum suggests more upside, provided that Price realized able to endure the course”written at the end of the report. “Long-term, the dynamics suggest that the worst of the recession may be over.”
the “Realized price” It is the average price at which all bitcoins last changed hands.
Each bar in the following chart shows the amount of bitcoins that changed hands in a certain price range. We can notice that a lot of BTC has been newly acquired (red bars) around the psychological thresholds of $40,000, $30,000 and $20,000:
GN notes that yes “the $20,000 region attracted a large number of buyers”. This redistribution of BTC has reduced the Realized Price below the BTC price. It’s good news since it means an increase in the number of BTC holders showing hidden profit. The further we out of it Realized Price, and the closer we are to the next one bull run.
This other graph is very interesting. It compares the current bitcoin price development with the Realized Price (dotted) on previous transitions between a bear and bull market :
Finally, let’s predict that a new high by August 1st would be very helpful. If only Mr. Musk didn’t spend his time cheating on bitcoiners…
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Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic and libertarian prisms.