Impact of Inflation on the Cryptocurrency Market: How to Fight It?

[00:03] My name is Artyom. Don't be alarmed that today's video was released without Frol. The fact is that literally a month and a half ago we recorded a joint video. And as you understand, many liked it, so we decided to record a few more educational

[00:18] videos, which I will tell you about. In general, I In general, such a small educational content. Today we will talk

[00:30] about inflation. Because now, for the last month, there is a lot of information on this subject. It is pouring out from all corners, but unfortunately, not many people understand how inflation affects crypto, so I will try to explain in a short video so

[00:45] that you have a basic understanding of what is happening in the world now. So, what is inflation? Why is it important to monitor this? Let's start with the fact that the crypto has been falling for monitor this? Let's start with the fact that the crypto has been falling for almost a year. That is, if we

[00:58] about 306-310 days and a logical question arises. If there are any objective reasons for such a long fall, in fact, problems in traditional finance

[01:13] lead to the fact that the crypto market is falling, so there are serious objective reasons. The fact is that now, as I said earlier, all economists and analysts only talk about high inflation, but not all ordinary citizens,

[01:28] ordinary cryptocurrencies, understand why this is bad. The fact is that let's first start with a basic understanding of what inflation is. Let's define inflation as an increase in the general level of prices

[01:42] for goods and services, simply put, when everything gradually becomes more expensive, and not by two percent a year, it is 15-20 percent, essentially the purchasing power of money. It decreases. Money

[01:56] money. It decreases. Money depreciates. If we take, for example, $100 a year ago, $100 now for this amount we can buy different quantities of goods, that is, money has become less valuable. A

[02:14] remain at the same level all the time? In fact, there are many reasons and Because it will take us several hours. If days, but in our

[02:28] situation, we will say that the reasons are obvious: firstly, the huge amount of money printed during covid during quarantine because in the States they simply printed dollars and distributed them to everyone who lost their jobs. Those who don't work,

[02:41] that is, simply helicopter money, are often called. Naturally, there can't be a situation where a huge amount of money was printed and at the same time the money didn't depreciate in time. They printed a lot.

[02:56] lot. Secondly, these are military conflicts. Unfortunately, military conflicts are not only a military conflict but also consequences. only a military conflict but also consequences.

[03:11] Ukraine, for example, there are huge volumes of grain on the world market now, like rates have been reduced, there is less grain, and in fact, if we look at situations where some kind of product from military conflicts becomes less on the world

[03:26] market, it leads to a shortage, and a shortage leads to an increase in prices, well, plus interruptions in the supply of resources. Yes, but this one attracts from the other. That is, these are consequences, the result of military conflicts, that is, we

[03:39] have several military conflicts, the result of which is interruptions in the supply of resources and goods. This is oil, gas, grain, metals, and it is clear that we are now talking about classical economics. Yes, not about crypto. And when there are oil shortages in the

[03:55] the price of oil rises. So, you know, now any product is tied to the price of oil. That is, even if some grow, the price of milk will also

[04:07] increase because the cost of milk includes logistics, delivery. Some components and constituents, therefore, the rise in oil, for example, leads to a gradual increase in all food products, all simple products.

[04:23] In general, military conflicts negatively affect the supply of resources, this affects oil prices, naturally, if they rise, inflation rises. A striking example is the phrase of one of the SEOs of a large development

[04:38] company in the States that before, it took us 20 weeks to build a simple house, and now it takes us 20 weeks to get a set of garage doors. He probably exaggerated, but the trend is clear that before, resources

[04:54] but the trend is clear that before, resources were supplied and some elements had a clear schedule, you knew exactly when they would reach you. Now, there are interruptions in supply, logistics are disrupted after the code. All this leads to the fact that

[05:08] such a deficit is created in the market for various products of various tools and this leads to an increase in prices. The rise in prices is inflation. Here, I even highlighted in black that a supply shortage when demand remains elevated is a good receptor

[05:23] for price increases. An increase in prices is precisely our inflation. A logical question arises. How to deal with high ventilation? How to prevent prices from rising? With me, in general, now the tool for fighting inflation is an

[05:38] increase in the key rate. What is it anyway? Key rate Yes, few people know. Let's start with the fact that any banking system of a developed country always includes two types of banks: the Central Bank, that is, the main bank of the country, and

[05:52] commercial banks that issue loans. The key rate is the interest rate at which the Central Bank issues loans to commercial banks. That is, we have a parent bank that lends to commercial banks, the interest rate at which the

[06:07] Central Bank lends to commercial banks, that is, the interest rate at which, say, the Central Bank issues loans to Sberbank. This is the key rate. Commercial banks, in turn, add an additional percentage on top of the key rate and issue loans to

[06:22] businesses and individuals. That is, for example, if the key rate in the country is 4 percent, a commercial bank takes a loan at 4 percent and then issues loans at four and a half percent, say, to businesses or individuals, and earns these

[06:37] 0.5 percent that it added. In general, the system and scheme are extremely simple and understandable if you describe it schematically like this and what happens. The fact is that an increase in the key rate leads to the fact that

[06:51] less money gets into the financial system. But I think everyone understands this here. Yes, what If the key rate rises, it means that for the end consumer, for the end business and for the citizen, loans become more expensive. Loans

[07:06] become unprofitable because they are difficult to service, and this gradually reduces inflation because the system gradually receives less and less money. When loans are expensive and it is not profitable to take them, no one takes them. This means that new money

[07:19] does not come into the system, and, for example, inflation gradually begins to fall. There is no new money in the system. Money begins to be valued more, as if the value of money that is already

[07:32] in the system increases. Accordingly, inflation falls. But the fact is that there is a downside: an increase in the key rate leads to an increase in interest rates on loans, as I already said for businesses and citizens. And this negatively affects the economy

[07:45] because it begins to slow down. The fact is that there are businesses, let's call them weak, that live only at the expense of loans, that is, they do not constantly refinance, but constantly take out new loans. If the interest rate

[07:59] rises, then a number of such weak companies begin to reduce staff in order to, for example, spend less money on salaries, cut bonuses, close down or go bankrupt, that is, all this leads to the fact that weak businesses leave the market. And

[08:14] contraction of the economy, a slowdown in the economy, economy, and ultimately, if we look at citizens in general, the increase in the key rate leads to the fact that people's

[08:27] incomes are decreasing. I have already said that they are cutting salaries, cutting bonuses, removing some supplements to supplements that were previously paid there, a salary of 13 or something else, paid there, a salary of 13 or something else,

[08:41] the amount of available funds for investment also falls. That is, if a person previously received a salary of, say, one and a half thousand dollars with a bonus, now his salary is 1000 dollars. That is, he simply

[08:56] lost 500 dollars there due to high rates, which he may have previously directed to investments, but now there is no price. If we smoothly move on to Bitcoin, then we need to understand that the price of Bitcoin for any cryptocurrency in general

[09:11] is not just numbers on a chart, yes, that is, there 50 to thousand thirty-twenty, the price is a mirror that shows the level of supply and demand for an asset. That is, if the price rises, then demand rises and people want to buy the asset, which means

[09:27] people have free money, they are ready to buy the asset and the price rises because demand increases. If the price falls, then no one needs the asset at the moment because they simply have People don't have the money or the desire to buy this

[09:40] asset, so demand falls, the price falls. It's logical to ask you a question. What do you think will happen to the demand for Bitcoin during the rise in interest rates? Well, I think everyone will definitely answer that it's

[09:55] obvious that the level of demand will fall because, let me remind you, an increase in people have less free money, that is, less free money, less demand, and, accordingly, the price will fall.

[10:11] For example, I already said there a year ago, we could buy $1,000 worth of Bitcoin every month. Yes, and constantly maintain this demand. And now you are ready to spend only $300. It is clear that the difference of $700 if you take one

[10:25] person is not critical, but when this happens on a global scale, on the scale of all participants, it already significantly raises a reasonable question. For everyone, when to expect Bitcoin to grow? In my opinion, growth will begin when

[10:40] inflation drops to reasonable levels and they stop raising the rate. Naturally, you need to focus on the US market because it is the first economy in the world and now it dictates the rules and conditions of the game, no matter how much

[10:53] we would like to deny it, in fact, this is true. Yes I think everyone will agree with me now in the States inflation is about 8.3 percent, this is a lot, the last time this happened was when you and I were not yet born, that is, a

[11:07] not yet born, that is, a very, very long time ago, and the Fed is the Federal Reserve System, the equivalent of the Central Bank. We are now actively raising the not going to stop for now, so

[11:21] as we can understand, this does not add positively. This increases the demand for Bitcoin, accordingly, while the rate is being raised, while inflation is high, it is not worth expecting growth. How long can this last? To be honest, no

[11:37] one knows, it could last six months, it could last three months or a year, but in my opinion, another six months. We will definitely suffer with the rate increase, then perhaps they will stop raising it, the market will exhale a little and begin to grow a little,

[11:51] naturally, there will be local rebounds, you should not think that we will just fall like a stone. No, there will be some local rebounds, but what their size will be is already difficult to predict, everything depends on a

[12:07] large number of factors. In general, I urge everyone not to give up, crypto is like any market Risky assets with increased risk are highly dependent on the macroeconomy and are very susceptible to

[12:21] such influences, that is, any negativity leaves a very strong imprint on the risky asset market, and this is not only in crypto, that is, let's say the IPO market has practically not coming out. Although two and a half years ago the market was doing very

[12:35] well. Everyone was fed, so no big deal. These are cycles, you just need to wait it out. Don't happen to it. No, you just need to sit quietly and wait,

[12:47] slowly educate yourself, invest somewhere, buy some strong assets and wait for all this in the world to end and we will start making money again to end and we will start making money again on positive news, when they

[13:01] start lowering the rate, let's say they raise it in general. I hope you liked this short 15-minute educational video. If you want to If you want to

[13:16] crypto, but also some new oil collections and new projects. But for something more educational, give it a like. Subscribe. I will record more often and appear on the channel. Bye everyone.