For the first time since cryptocurrencies were born, the collapse in prices and the end of the 2020-2022 cycle had nothing to do with the technical soundness of the various blockchains on which cryptos are designed, nor with people's "faith" in the crypto world or in any particular currency.
There are no particular problems with mining either, nor have there been any particular incidents regarding the approval or non-approval of cryptos by institutions.
On the other hand, from a macroeconomic point of view, this collapse is very similar to the great financial crisis of 2008-2009 due to the subprime crash.
Indeed, in this cycle BTC and ETH have been widely used as collateral for loans throughout the ecosystem, just as, in traditional finance, Wall Street firms use U.S. Treasury bonds as collateral in loans.
Hedge funds, exchanges, and centralized lending companies have used their stockpiles of BTC, ETH, and even stablecoins such as USDC and USDT, to secure the huge loans needed to buy low-quality tokens, which we can now consider equivalent to the 2008 subprime.
Typically, these are tokens linked to highly speculative decentralized finance projects that offer outrageous returns of up to 100 percent.
When some of these tokens, such as LUNA and UST, went out of business, many of these leveraged positions became uncollectible, opening the door to massive margin call sales.
So companies and large investors with these huge leveraged positions had no choice but to sell their assets backing these debts, i.e., their ETH and BTC reserves.
The great financial crisis of 2008-2009 taught us that an over-indebted market eventually corrects itself. But it does not do so in one fell swoop.
Since there were multiple sequential defaults in 2008 that prolonged the crisis, it is possible that this time too there will be new defaults of tokens linked to junk companies in the coming months.
We also showed in a previous article that the LUNA default was triggered by multiple intentional events, not just a random accident.
This is all the more reason to expect new collapses, intentional or random, of junk companies and thus new liquidity crises that will affect the stocks of "noble" currencies such as BTC and ETH.
Nikolaos Panigirtzoglou, an analyst at JP Morgan, is also among those who have noted the similarity of this cycle's crypto crisis to the 2008 stock market crisis.
Panigirtzoglou noted that in this type of crisis, prices reach their lowest point before the episodes of bankruptcies of companies and financial institutions affected by the crisis occur.
So if the crisis in the crypto market is following the same script, quotes should have already reached the low point, even if new episodes of platform and exchange failures occur.
So the best way to use this phase of the market is, on the one hand, to place buy orders for valid crypto (even just ETH and BTC) far below current market prices.
And on the other hand to make purchases manually whenever there is a moderate decline.
In this way, with automatic orders we will not miss the opportunities provided by large declines, which are generally very fast, while with manual purchases we will systematically accumulate in the intermediate price ranges.
Economic framework trend.
The Core PCE (prices of consumer goods less food and energy) recorded its third consecutive decline in three months.
The index in May rose only 4.7 percent year-on-year, against expectations of a 4.8 percent increase and down from 4.9 percent in April.
The "classic" PCE, which also includes food and energy, registered the same level in May as in April, i.e., an annual increase of 6.3 percent, which is still down from March's peak of 6.6 percent, though.
In addition, since food and energy prices have plummeted this month (oil fell 5 percent, natural gas plummeted 30 percent, corn fell 13 percent, and wheat fell 23 percent) it is fairly certain that the June survey of "classical" PCE will be well below 6 percent.
Europe, on the other hand, is discounting an acceleration of inflation.
That's because the ECB can't make an aggressive policy of reducing government bond purchases as the Fed has decided.
The reason?
The ECB's purchases of the government bonds of the various euro countries serve to hide the abysmal differences in the economies of these countries, thus setting an illusory plateau to the value of the euro that applies to all countries.
So if, for example, the ECB decided to slow purchases of German bonds, it would have to continue purchases of Italian bonds. In fact, a slowdown in purchases of both bonds would bring out the true value of Italian bonds, whose interest rate would skyrocket, while the increase in German bonds would be much smaller.
The ECB can only do partial QT, certainly not the Fed's full-scale QT, that's why inflation in Europe keeps galloping (let's also not forget that there is a war going on over there).