Week in a Glance: Cryptopocalypse, China Threat, EU Recession

24. Mai 2021

The past week can definitely be called a week of cryptocurrencies. It's very likely that it'll become the watershed line that separated the unconditional faith on the part of crypto enthusiasts in the market prospects from skepticism about the future of cryptocurrencies. What is the key problem of assets, whose value is radically out of touch with reality? You need blind faith in further growth. As soon as doubts arise, this whole pyramid of illusions begins to crumble literally before our eyes. And then the “Minsky moment” comes, plus technical analysis starts generating sell signals, plus stops start to work, apartments for adding margin to maintain positions run out, and in general, the topic suddenly ceases to be fashionable. We already went through all this at the end of 2017 - the beginning of 2018, but most of the crypto investors were still going to school then, so they don't remember.

And this is not a single case of cryptocurrencies. Consider the Nikola company, for example. Tesla's killer, a new word in electric vehicles and other nonsense, which drove the stock prices to the region of $90 apiece a year ago. So, now they are quoted at $12 and the funniest thing is that nobody needs $12.

And since Tesla has already been mentioned, even 3-4 months ago, the shares were tore and thrown around $900. And now they are sadly slipping below 600. And this is with the growth of sales in the super-promising market. It's just that after $900, $1000 did not follow and that's it. The sense of buying Tesla shares was abruptly gone. What can we say, according to S3, Tesla's short interest as of May 13 was $22.5 billion. That is, it is the most popular stock among shortists in the entire US stock market. Mile Burry alone has bet more than $500 million on its fall (in the form of buying put options) and he has every chance of repeating his success with credit default swaps during the global financial crisis. It is strange that Musk has not released a new series of red underpants. Apparently, he understands that the one who laughs last laughs well.

But God bless this cryptocurrency market, with all the hype around it, it is a dwarf on the scale of modern financial markets. Threats hang over much more serious segments such as the stock market. The specter of inflation is haunting the world. Following the USA, the UK and Germany set inflation records. So the tightening of monetary policies becomes a question of not if, but when. With all that it implies for overheated stock markets.

China is another threat on the horizon. The defaults on bonds in the Celestial Empire are breaking all imaginable and inconceivable records. Just to give one fact: in 2015, when China's stock market crashed, defaults totaled 8.9 billion yuan. In 2021, firms were unable to pay back 100 billion yuan. And the year has not even crossed the equator yet. Considering that the total market size under $15 trillion in the event of a negative scenario will not seem like little to everyone, not just China.

The expectations of the markets for a quick recovery of the world economy have not yet come true. Europe, for example, slid into recession again in the first quarter. A strange such recovery is being obtained with negative GDP growth rates.