In a recent interview, Mark Cuban, the technology billionaire, said stock and crypto companies sustained by cheap money would be exposed and fold during this financial winter. He added that the pain would be amplified for projects with no valid business models.
The fall of Crypto Projects
His preview follows the recent catastrophic failures of projects initially thought to be “too big” to fail. The de-pegging and subsequent collapse of UST, an algorithmic stablecoin tracking the USD, had a consequential effect on Terra, whose native coin, LUNA, also slipped, causing massive losses to holders.
In stocks and crypto, you will see companies sustained by cheap, easy money—but didn’t have valid business prospects—disappear. Like [Warren] Buffett says, ‘When the tide goes out, you get to see who is swimming naked.
As bears press, there are concerns about another wave of crypto liquidations. The Celsius Network is rumored to be experiencing an acute liquidity crisis after halting withdrawals earlier this week. The community suspects bankruptcy.
Meanwhile, Three Arrows Capital (3AC), a Dubai-based hedge fund, might be insolvent after failing to meet margin calls from lenders after taking humongous crypto loans from different lenders.
Although the market is under pressure, the Shark Tank investor believes that projects that release disruptive, functional solutions even during this bear market will sail through.
Disruptive applications and technology released during a bear market, whether stocks or crypto or any business, will always find a market and succeed.
Changes in U.S. Monetary Policy
Talking about the correlation between Bitcoin and stocks, the billionaire said that if rates go up, the correlation will struggle. He added that “the exception, as with stocks, is for new, game-changing applications.”
It will be rough for markets to navigate going forward after months of cheap money. To contain the effects of the COVID-19 ravages, central banks lowered interest rates to record lows while also embarking on aggressive bond purchasing programs. The tide is now shifting, and Jerome Powell, the Chair of the Federal Reserve, plans to raise rates to combat.
This week, the FED raised fund rates by 0.75 percent, the single largest increase since 1994.
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