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Comment by tric | Hacker News Reader

His claim... "it collapsed, because it doesn’t bring anything useful for society"

...is incorrect. The total crypto market cap collapsed because of interest rate hikes.

Nvidia's stock dropped 68%. Is that because it didn't bring anything useful for society? No. It was trading at a premium because of low rates.

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> The total crypto market cap collapsed because of interest rate hikes.

It's constantly been peaking and collapsing since 2013, when there were no US interest rate increases. The 2017 peak happened in the middle of a US interest rate increase cycle. The 2021 peak happened 6 months before the most recent US interest rate increase cycle. I'm sure interest rates were varying in other countries on different schedules, but blaming a crypto market collapse on interest rate hikes doesn't seem to square with the data.

Yeah but institutional investors were just starting to hold much larger positions within the last few years. They are much more sensitive to interest rate hikes than individuals.

I would assume that as long as the returns are greater than the interest rates, institutional investors are less sensitive than individuals to interest rate hikes.

> The 2017 peak happened in the middle of a US interest rate increase cycle. The 2021 peak happened 6 months before the most recent US interest rate increase cycle

Denominate the Bitcoin market cap in US M1 money supply. You will then see that it peaked in 2017, 2019, and 2021 (twice). This ratio also bottomed recently.

Effectively, when the central bank that manages the word's reserve currency starts printing money (or there is an anticipation of printing), Bitcoin appreciates. The opposite happens during tightening (ie rate hikes).

In recent years, you can argue that bitcoin has acted as a canary in the coal mine. Bitcoins chart is pretty much the same as stocks (especially tech/growth stocks). It just moves slightly ahead of stocks sometimes.

> The total crypto market cap collapsed because of interest rate hikes.

Let's take a deeper cut, why does something collapse when interest rates rise?

Because capital is necessary for growth and the more expensive capital becomes the less growth is anticipated.

We've seen a lot of growth over the past decades, so it should be easy to retire at 30, but we're being told to work longer, be more productive, and die sooner. So where is that all growth? something doesn't add up.

> So where is that all growth?

Is that a rhetorical question? It flows to the 1%. Current levels of wealth inequality are unprecedented in American history. We work hard to support the lavish lifestyles of the rich.

If we could combine today's technology with 1970s levels of wealth equality, we could probably retire in 1970s level comfort by the time we reach age 40.

Money flows out of equities and into bonds which yield a higher more dependable return when interest rates are high enough.

The equities market was already running at artificially inflated values for some sectors (like technology), which means there isn't much growth potential (if everything is deemed to be already overpriced), and so the outflows were quite significant from those sectors, accentuating the inverse relationship between equities and interest rates.

I would argue that cryptos are typically not equities; they're usually either commodities (cryptocurrency) or some sort of non-current intangible asset (NFTs). The exception would be things like shares in the DAO, which, while interesting, is not typically what people have in mind when they say "crypto" these days.

Crypto is not an equity, but it trades like one (specifically like a tech meme stock) as of late. It peeked in Nov 2021 just like tech stocks, and has come down roughly a similar amount.

I can't say for sure, but I think cryptos are actually behaving a bit more like precious metals, in that people use them as speculative store of value - so a bit like you say, commodities.

The other thing that surprises me is the sheer number of currencies that currently exist - I had thought there would be a massive shake-out in the market but so far they seem to be multiplying like fungus.

That’s a good model. Gold and diamonds actually have industrial applications, but those price signals are lost in the noise of fashion and speculation. If they were suddenly unpopular, prices would drop, but not to zero.

Money flow retracts if its cheaper to save than to borrow.

Interest rates in Argentina have been on an upward trend for the last decade [1], yet bitcoin is near its all time high relative to the Peso [2]. How do you explain the contradiction here?

[1] https://tradingeconomics.com/argentina/interest-rate

[2] https://tradingeconomics.com/btcars:cur

I fail to see the contradiction. The capital has already all fled Argentina, and higher rates aren’t going to entice many dollars back in.

The claim is higher interest rates cause things to collapse.

US interest rate go up, bitcoin go down!

Argentina interest rate go up, bitcoin go up!

Contradiction.

What you pointed out tho is important: fiat is a confidence game at the end of the day, and it doesn't matter how much yield a fiat offers if it lacks confidence.

Bitcoin is more or less a measure of how much confidence people have in their respective fiat currencies.

Because: Argentina.

Not sure if you truly grasp the global impact that the United States fed policy has.

Market becomes less speculative.

So much for crypto being an inflation hedge.

It's a hedge against currency debasement. And it hedged pretty well against that! From the moment M2 supply increased (Feb 2020) to the moment M2 began decreasing(jan 2022), bitcoin earned you almost 400%.

Might be true, but I think you should look at Nvidias stock price.

Take a look at Bitcoin. It's up 80% from the recent bottom.

NVDA is up 140% for similar reasons: the market anticipates the tightening cycle is over.

It's up more than Bitcoin because of the AI narrative. It's also possible money is moving out of bank stocks (compare to KRE or XLF), small/mid-cap stocks (compare to IWM), and other semiconductor stocks (compare to SMH). This trend could mean-revert into the new quarter.

The comment I was originally addressing was about the decline, not the rally.

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