27-5-2023 In the latest episode of Macro Markets, hosted by crypto analyst Marcel Pechman on the Cointelegraph Markets & Research YouTube channel, the reasons behind the cryptocurrency market’s 60% decline in market capitalization, compared to the S&P 500’s proximity to its peak, are discussed. Pechman’s show aims to simplify complex financial concepts for the general audience and explores the impact of traditional financial events on day-to-day crypto activity.
Pechman starts by addressing the significant issue faced by the crypto sector, namely its lack of classification as a commodity or a foreign exchange currency. This presents a challenge, as not all mutual funds are able to hold cryptocurrencies. As a result, Pechman asserts that if Bitcoin and Ether are primarily viewed as alternative risk assets, they will trade accordingly. Therefore, searching for theories to explain why crypto hasn’t reached new highs is futile.
Moving on to the next topic, Pechman analyzes the $2.3 billion short seller losses of NVidia, pointing out that the losses are still open as long as the short sellers have sufficient collateral deposits. Similarly, individuals who purchased crypto at higher prices will only realize their losses when they sell. However, the short seller must find someone willing to lend the shares to keep the trade open. Notably, Bloomberg reported NVidia as the fourth-most shorted stock in the United States, following Apple, Tesla, and Microsoft. Pechman highlights that these four stocks are also among the top 10 components of the S&P 500, raising the issue that the short sellers may have maintained market neutrality by buying index futures and selling individual stocks.
The show concludes with a discussion on China’s 5% growth, which has disappointed investors and raised concerns for the global markets. Pechman emphasizes the significance of China’s reluctance to introduce new stimulus packages, suggesting it may be a strategy to further weaken other economies worldwide.
China’s role as a key player in global commodities is outlined in the Bloomberg article. If commodity prices and the global trade balance continue to decline, this will result in reduced tax revenue for other governments. Pechman highlights that Germany has recently entered a technical recession, with the United States following suit.
According to Pechman, the initial impact on crypto is negative, as liquidity is drained from the markets, and investors tend to seek short-term government bonds and cash. However, in the medium term, a weakening US dollar can be beneficial for cryptocurrencies.
