However, while it seems the circumstances will lead to an imminent fall of the global markets, they did not crash as many expected. Gold rose 0.7% this month, as it always does in times of crisis, Silver maintained at 1.9%, platinum rose 1.4%, and palladium shed 2.4% On the other hand, Bitcoin increased notably among cryptocurrencies at the end of last year after falling from 70% of dominance to 30% once Elon Musk made public that Tesla would stop accepting Bitcoin payments before crashing down at the beginning of 2022. Bitcoin had at Its historical high last November with a $69,000 value, climbing about 346% in only 2021, which made the 42% of the combined cryptocurrency market's overall value. According to the statement from Bitbank analyst Yuya Hasegawa, the consumer price index report could instigate price concerns and fuel Bitcoin, which increased alongside inflationary expectations during those weeks.
Moreover, Wilfred Daye, Securitize Capital trading platform's head, said: "Inflation is a major consideration for investors today, and the younger generation of investors often favors cryptocurrency as a hedge over gold. While gold has slid throughout the year, bitcoin and Ethereum have more than doubled. Retail investors have played a major role in fueling this shift, and institutional investors are increasingly following suit."
The dollar kept its position mainly without strenuous changes. The U.S. Federal Reserve maintained a reasonably thin line within the economy by increasing interest rates gradually without letting them spike and end a historic recession.
Governments have been fighting Inflation since the 2008 recession by creating prevention programs that allow governmental organizations to explore different measures to keep a healthy and stable economy. These plans were initially shocked by the damage caused by the pandemic, and yet, at the end of last year, an additional global crisis would have threatened to throw all these efforts away.
The decision of Vladimir Putin to invade Ukraine had turned the table upside down. So far, it is impossible to know the tremendous damage that this war will leave behind on our global economy and other international matters.
The war on Ukraine presents challenges to the entire planet, and there are not too many options to fight back. If we were already fighting the lack of essential resources to prevent an inflationary economy before the war, now we have more challenges.
Russia and Ukraine export more than 25% of wheat globally, apart from being one of the biggest exports of oil, steel, and fertilizers. How this war ends will determine the level of Inflation, we will face in the future years.
The scarcity of essential supplies is already notable in many developed countries where gas stations raise their prices daily. If interest rates keep climbing, the outcome is making ordinary families decide whether to heat the house in winter or feed their family. Others will have to find an alternative for transport, but scarcity will make the poor poorer overall.
And as the old saying says, numbers don't lie. The global economy expanded by 5.5 percent in 2021, and it is expected to output only 4.0 percent in 2022 and 3.5 percent in 2023, according to a report from the United Nations World Economic Situation and Prospects (WESP) 2022However, the Organization for Economic Co-operation and Development (OECD) has now cut this projection to 3.0 percent, and even less expansion the following year. Seeing how the economic growth momentum slowed down, especially in China, the U.S.A., and the European Union by the end of last year put more pressure on the economy, accelerating Inflation and risking a possible recovery.
The indicatorfor the U.S.A. for possibilities of recession has scaled to 12.2%, similar to what it was at the beginning of the pandemic and resembling the numbers that were present in the 2008 crisis. According to Bloomberg Economics
, traditional markets are also having an alarming reaction to the recent developments in the economy. S&P 500 went down more than 20% from January, and Stoxx Europe 600 followed with 19% in the same period Germany's DAX and Italy's FTSEMIB were down over 1.2%, and London's FTSE was not far behind in the list. The euro teetered at $1.0025 as gas and oil prices increased again. The fear of losing investments or the risk involved in the actual market panorama is spreading like a virus among investors and daily consumers that, as a consequence of the uncertainty, are withdrawing funds and cutting costs to survive a recession that's getting exacerbated by the demand of an inexistent financial economy.
When the index of world stocks was down 0.8%, showing a new low for 2022, international entities got intense. "This is happening despite the actions that central banks have so far taken... stoking fears that they will have to go harder and faster if inflation is to be tamed, the cost of which is being increasingly seen as lower growth and potentially recession," Equity Capital's chief macro strategist Stuart Cole said.
The California Public Employees' Retirement System report and BlackRocks Inc Company show a couple of cases. The California Public Employees' Retirement System announced a loss of over 6% at the close of the 2021/22 fiscal year on the 30th of June compared to the last fiscal year when CalPERS reported a positive 21.3% return to the funds. CalPERS provides retirement benefits to more than 2 million members counting with the most significant public pension fund in the U.S., reported investments in stocks dropped 13.1% in value. Fixed-income investments, such as bonds, fell 14.5%. These "public market investments" make up nearly 80% of the fund.
"Our traditional diversification strategies were less effective than expected, as we saw both public equity and fixed income assets fall in tandem," CalPERS Chief Investment Officer Nicole Music said in the release.
Another disrupting news is coming from BlackRock Inc. The World's largest asset manager, once the first firm to break through $10 trillion of assets under management, is now the most considerable amount of money lost by a single firm over six months. Only in the first half of this year, it lost $1.7 trillion of clients' money. As the company stated last week: "2022 ranks as the worst start in 50 years for both stocks and bonds," Chairman and Chief Executive Officer Larry Fink said on his earnings call.
Across the industry, assets have shifted from active strategies to passive. Like others, BlackRock's case is not different. Around $21 billion has flowed out of active equity in the past decade, with $730 billion flowing into indexed equity. The firm's passive equity holdings are ten times larger than its operational business. BlackRock's roots lie in active fixed income. To encourage otherwise, the firm launched the first US-domiciled bond ETF in December 2002 but failed. In BlackRock's case, $280 billion has continued to flow into active fixed income in the past ten years until this year due to the collapse in bond markets, flowing money out of active fixed-income funds. BlackRock saw clients pull more than $20 billion during the first half of the year resulting in over $200 billion leaving the industry. Some of that is shifting into passive funds, in particular ETF. The moment we published this article, it had gained $39 billion in ETFs and $25 billion in other indexed strategies. For now, BlackRock's fixed-income portfolio managers are mounting a solid defense.
With a wave of more inflationary signs coming from more Covid-19 testing in China and the fear of possible future lockdowns and the related consequences of such lockdowns, investors are retreating from risky investments. "Anyone trying to pick the bottom in China's growth and equity markets on the basis that China was 'one and done on lockdowns is naive," said Jeffrey Halley, senior market analyst at OANDA.
Last month, China's growth shares dropped, with the primary tech giants listed in Hong Kong plummeting by 4.45%. Index leaders Alibaba, Tencent, and Meituan, were each down between 4% and 6%.
Economic experts argue that from the moment the pandemic started, what would be the consequences of the emerging Inflation and subsequent possibilities of entering into a recession? While someone's expectations predicted a decline of 10 points or more, others measured it down 30 points at this point of the year. Additionally, while some asked for prevention against an inevitable recession, other bids are not that drastic, predicting a 50% of possibility or even a mild heatwave of the incoming recession towards the end of 2022.
Like the traditional markets, cryptocurrencies also face the implications of an inflationary economy. Moreover, in the last few weeks, news about crypto promoted a high volatile risk of investment, making investors rethink where to put the money. Economy crises affect the majority of the economic sectors, including cryptocurrencies.
Cryptocurrency is the most prominent financial application of blockchain technology, a technology that is currently in the developing stages and being implemented in different systems for more efficient, secure, and transparent transactions between two or more parties. Secured data in the blockchain has been proven to be safer and more trustworthy than the current system because of its authentication system. This aspect was confirmed globally when donations to Ukraine were made through crypto and NFTs at the beginning of the war. Something that would have been very difficult and would have taken longer to have been done with our traditional financial system.
However, as Jared Madfes, partner at Tribe Capital, stated: "It's straightforward to be fearful right now, not only in crypto but generally in the world". It is not about crypto, as the fear involves any asset that has a volatile aspect within the investment. A prevalent feeling of loss is leading investors in the market to pull back their funds from any asset they have invested in,and it is spreading quickly.
On the bright side, the pressure from crypto crashing can lead governments to act on it and step up by regulating the industry. This aspect might be the missing piece for better acceptance and improved confidence within the digital coins. While it is not likely that the two main tokens, Bitcoin and Ethereum, will get dethroned from the top of the list, Central Banks around the World are considering joining the digital force by creating their cryptocurrencies, which notably will help to settle in the new financial ecosystem.
At the moment, as expected, crypto skeptics are announcing "the end of crypto" as the numbers are not showing signs of improvement. Although it is helpful to remember, this is not the first strike for crypto. In 2014, bitcoin's value went down due to the collapse of the Mt.Got exchange, and again in 2018, it had a rough time when hundreds of I.C.O.s crashed and burnt. Every time, crypto not only recovers, but it arose more valuable than before, and nowadays, its value is still over its peak at the end of 2017.
However, this time downturn is different, as it's not cryptocurrency collapsing; it is the financial market itself. In easy words, no money, no value.
After running out of any prevention measures proven by Central Banks and the Federal Reserves, burning and injecting money is not an effective strategy to survive the Inflation caused by the pandemic and recent events like the war Russia-Ukraine. Other alternatives must be put in place.
Bearing all circumstances coming to crypto, it is easy to explain its lower rank numbers. Once, crypto was meant to replace our current fiat money, which explains why its value has an equivalent in dollars. Nevertheless, hundreds of investors are pulling away at the same time all their earnings on crypto out of increased fear of the global market crashing down. But here, we face another problem, as crypto was thought of as a trading investment slopping highs and downs through the changes within the market, the reality is that it is not physical/ existing money for every investor deciding to withdraw their money invested at the same time, and with every withdraw crypto lose more and more its power as the Inflation is caused because of the actual economy liquidity, mainly the dollar.
Moreover, the cryptocurrency value exchange in dollars is not guaranteed by any institution in the World that can generate real currency fiat, such as the Fed. This knowledge could create a dramatic illusion of wealth or serve as a mindset for rethinking the next steps with a cold head and not panicking, as cryptocurrencies are a market in the development and implanting new regulations at a good pace; however, the crypto market is not ready to supply demand for individual investors wanting to fill their pockets when facing a global financial crisis.
We live in times of uncertainty, and a race led by fearful minds will not be the answer to overcome it. How we will go through it and the outcome of it is unknown, but certainly, as always, it will have an end.
