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Crypto Crash, Tech Collapse, NATO Pushback and Chelsea Dashed
Last week could go down in history for triggering multifecta'd chaos and contagion
The last week might get remembered as the start of the next economic downturn. We’ve had it pretty economically good the last few years, since the worst of the Great Recession was behind us. Indeed, things have been pretty much uphill for the best part of a decade. That was, until Covid, inflation and Putin’s war in Europe has catapulted risk straight out of the window as if it were a rodent heisting your favorite Stilton.
With most downturns there is a key event that brings it home. The bursting of the tech bubble spurred the post millennium slump. 9/11 triggered the beginning of the end for US internationalism and the collapse of Lehman Brothers meant bankers bonuses were a bit less opulent for a year or two. Tragic beyond belief.
The Great Recession, which saw one of the worst economic declines in US history, officially lasted from December 2007 to June 2009. The collapse of the housing market was fueled by low interest rates, easy credit, insufficient regulation, and toxic subprime mortgages. It proved to be quite a cocktail of financial fizz which led to the economic crisis.
Since then we have experienced an extended period of low interest rates, solid economic growth and stock markets generally heading to the right and mostly upwards - you know like BlackRock likes it. And as with all positive cycles it felt, for a while, as though it would keep on going indefinitely - like a Trump tweet storm.
It lasted until the Great Pandemic forced governments to borrow money as if it had gone out of fashion and, following this government backed spending binge, we have been jack hammered with a series of political and economic shocks.
The last six months has pummeled us with the rat-tat-tat of empty supermarket shelves triggering a rise in interest rates, while the drive back to work fired the price of gas up to the style oil magnates are more accustomed to, but apparently not enough for Valdimir Putin so he charged headlong into Ukraine, and we pretty much know the rest. Economically we may be heading into the slightly balding man’s hopes for a western ‘hell in a handbasket’.
This version of ‘hell’ became more evident in the last couple of weeks:
In New York, the S&P 500 index dropped 3.2% on Wall Street in a week – its lowest point in a year - after its worst streak of weekly losses in more than a decade. The tech-heavy Nasdaq fell 4.29% as investors once again sold off once-hot tech stocks.
Nasdaq has slumped by over a quarter this year and is down by 12.5% in the last month alone. Meaning it is officially in bear territory.
The DOW is nearing a 20% drop from its high last year and the other leading stock markets are not faring much better - other than London’s FTSE, because it is so heavily weighted towards banks and energy stocks that it seems to defy 21st century norms (which is another can of worms in the making).
Netflix is down around 75% from its 52 week high meaning ads will start to pop up again (I thought ad-free was why we did the damned thing in the first place?). And don’t expect to be able to share your password with your Ukrainian sponsees any more because the streaming outfit is on a drive to slam the lid shut on that nice little perk/wheez/back-door.
Bitcoin and Ethereum, the two most popular cryptocurrencies are down by more than 50% since the November peak. Luna has all but disappeared and Terra has collapsed. According to Triple A there are over 300 million crypto users globally and over 18,000 business accept crypto payments. Ouch.
If you’re into Bored Ape NFT’s it seems there’s Bored Ape and CryptoPunks derivatives on every blockchain of note dragging that market down. And Ethereum’s ‘Not Okay Bears’ is the first example of an NFT derivative leaping from another chain’s project and then gaining non-trivial traction. On the heels of an incredible volume surge overnight, Not Okay Bears trading halted on OpenSea this morning undoubtedly as the result of a DMCA takedown request. Which is Web3 for a-little-after-the-meltdown self-regulation/friggin-chaos-management. Footnote: If you’re concerned about flaky NFT’s apparently there’s a LettsArt for that.
And, perhaps most significantly of all, Chelsea football club proved that Putin also has a grip on the world's top tier of football. All while the team has learned that going for penalties in a cup tie might need a new style gamblers health warning for its players. Next go around it could be more conducive if they were to capitulate in normal time so the rest of us can get to the pub to drown what's left of our losses.
But it could prove that the crypto armageddon will be the proverbial twig that shatters this bull’s back.
By the end of last week, the market capitalisation of Terra had fallen from $41bn to $6.6m, “the largest destruction of wealth … in a single project in crypto’s history,” according to Charles Hayter of the analytics firm CryptoCompare. As a result this week Terra was trading at just $0.11. It's pretty much right up there with Enron, Madoff and the biggest .com collapses.
And it hasn’t finished there. Terra’s initial collapse has sparked a further wave of selling, knocking a further 15-25% off the value of most of the major cryptocurrencies. It looks like contagion is setting in. And in the wake of the collapse of Terra, several other stablecoins’ values (which are supposedly pegged to the dollar) have started facing problems.
Given that there are 2,000 different cryptocurrencies - the long, shaggy tail of weaker cyrpto money could start to wag the wider economic tale, shaking many more than a few ticks into digital oblivion.
Deus Finance’s DEI coin seems to have also freaked out and is currently trading at around 66 cents, having reached a low of around 52 cents early Monday morning. Equally, The destabilization of DEI and other coins has opened up a new attack on a decentralized finance protocol aptly named ‘Scream’, which lets regular folks borrow cryptocurrencies by posting other ones as collateral. They promise that this is not some kind of Ponzi scheme.
We might find out if the highly inter-blockchain-connected crypto world is robust enough to survive its first major financial downturn - or is it going to pop like a dotcom bubble? Has crypto been oversold?
Could the interlinked world of digital currency, distributed finance, DAO’s and NFT’s be about to behave like a drunken game of Domino’s? And I don’t mean the one where we keep calling the local pizza outfit in the hope that we accumulate a multi pizza meal-deal or snarl a uniquely good looking delivery dude.
Some argue that Terra could be the spark that creates a run on the Web3 bank like subprime mortgage instruments triggered the Great Recession. Time will tell. Well, that and presumably Elon Musk who seems to be telling pretty much anyone what they should be doing - check cocaine infusions at your nearest Coca-Cola dispensary. #twitterfreeforall
Yet this bear markets’ asset destroying contagion could prove to be the most powerful weapon in Russia’s much depleted arsenal.
The financial downturn, whose fate might rest in Vladimir Putin’s hands, could become the Russian leaders most potent nuclear level threat.
If Putin decides, he could, while waging military war in Ukraine, simultaneously fight an economic war with the rest of the western world. By prolonging the war with his neighbour he could presumably keep investors and consumers on edge, while maintaining agonisingly high prices for oil and gas around the world. And no, this is not the next James Bond script.
As sanctions continue to ratchet up and as Sweden and Finland join NATO, he might choose to dial up his insatiable propaganda machine, so stoking fear and instability into wider European countries - almost guaranteeing further stock market wobbles, currency runs and a cost of living crisis that will make it feel like we are all rationed to within an inch of actual war-footing.
If western countries, as a result, tip into recession they could become more timid towards Russia as they watch other incumbent governments stumble under the politcal boot stomping from their cost of living crisis. Putin’s ultimate goal of destabilising and weakening the west might not have worked out so well in the short term, as the war united NATO, but it might work down the road as more economies begin to unravel. Ernst Blofeld? Blofeld pha!
Given that Putin is unlikely to back off any time soon. It might prove that the collapse of an innocent, if slightly illconceived cryptocurrency stablecoin, while seemingly an isolated incident, will prove to be the beginning of a wider economic collapse that could affect us all. At a minimum it will see crypto assets gaining strict government regulation and some might even have to get bailed out or, God forbid, nationalised. The great crypto shock might be imminent. With only the strongest surviving.
The future of the western world, more than ever, could rest in the relatively inexperienced hands of a small group of cryptocurrency founders. Look how that worked out for us the last time around. Oxymoronically crypto might never be more relevant. And not just as a trendy hipster giveaway on the backstreet of tinsel town. The underground world of DeFi is bouncing onto the main stage.
Is crypto ready for so much of our undying scrutiny?
Maybe it is time for us to mortgage the house and take that one way SpaceX ticket to Mars after all. Tweet that one Elon baby!
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