Connect with us

Uncategorized

Is the Stock Market Crashing?

Published

on

Is the Stock Market Crashing?

With the consumer price index (CPI) jumping to 8.6% in May 2022 — above the 8.3% reading in April and higher than analysts’ consensus forecast — Wall Street lost all pretense of sparking another robust rally. Instead, many investors ran to the relative safety of the U.S. dollar, fearful of a stock market crash and thus the start of a recession.

Logically, rising costs are anathema to equity valuations as they reduce real earnings because of a drought to consumer spending. While the backdrop may be ominous, it’s also important to approach these choppy waters with hard data, not wayward emotions.

Is the Stock Market Crashing?

Let’s get right into the question that’s on every investor’s mind: is the stock market crashing? In a word, yes. From the start of January to the closing bell of June 16, 2022, the benchmark S&P 500 index dropped almost 24% of value. With analysts unofficially regarding a 20% peak-to-trough decline as confirmation of a bear market cycle, it would be disingenuous not to consider the recent erosion as a market crash.

Nevertheless, this basic conclusion is not the equivalent of a green light to hoard rice, beans and ammunition. Rather, investors must understand that the free market never operates in a perfectly linear fashion. Indeed, supply and demand in the stock market is essentially the culmination of human emotions whittled down to a binary output: buy or sell.

Advertisement

However, the real calculus begins when attempting to decipher at which price point the binary setup mentioned above begins skewing beyond the 50/50 equilibrium; that is, what is the trigger that inspires investors sitting on the fence to commit to one of two actions?

Here, University of International Business and Economics’ Jiangze Bian, Chicago Booth’s Zhiguo He, Yale’s Kelly Shue and Tsinghua University’s Hao Zhou noted that economists long theorized that “leveraged-induced fire sales” lit the fuse for the U.S. stock market crash of 1929. But without empirical evidence, the proposal was a barstool missing a leg.

However, through studying the equity account risk profile of investors engaged in China’s stock market, the researchers discovered that “retail investors rapidly unload holdings as leverage limits are approached or exceeded.” In other words, when the implied risk of holding onto publicly traded securities is greater than the potential reward, investors take the rational approach and run to cash (i.e., sell stocks).

While it’s impossible to cover the full spectrum of human motivations, the evolution of a stock market crash can be roughly categorized into two main catalysts: kinetic and fundamental. Under the former category, investors might react viscerally to sharp swings in valuation, thus panicking out of their holdings. In the latter category, investors strategically or deliberately respond to core data — such as looming threats of a recession — as their north star.

In a somewhat pejorative sense, Wall Street analysts often refer to the “smart money” and the “dumb money.” Dumb money is reactive, chasing the whims of the moment. The smart money is decisive, having conducted ample research beforehand to engender the confidence necessary to move pieces on the board under a rationally concocted framework.

Advertisement

Ultimately, the question isn’t so much about whether or not the stock market is crashing. Frankly, markets rise, markets fall. The critical arbiter that often determines success or failure is the preparation to respond effectively.

What is the CBOE Volatility Index?

Colloquially referenced as the fear index or fear gauge, the CBOE Volatility Index is a popular benchmark to determine the implied volatility of the stock market. Calculated and disseminated on a real-time basis by the Chicago Board Options Exchange, this barometer — which is perhaps best known by its ticker symbol VIX — incorporates pricing dynamics within S&P 500 index options.

Specifically, the VIX represents the equity sector’s expectations for volatility (downside price movements) over the next 30 days. Mainly, investors analyze the VIX to determine the magnitude of risk or fear in the stock market. Although the fear index may be an applicable tool for short-term swing traders, analysts and patient buy-and-hold investors often pull up historical VIX readings to determine probabilities of game-changing events such as a recession.

Peruse mainstream media reports about a potential stock market crash, and you’ll often see exhortations to watch whether the VIX reaches a certain milestone, with the implication that certain threshold breaches imply troubled waters ahead. But just how much emphasis should investors place on the CBOE Volatility Index?

Likely, the best answer is to never use any one barometer as your exclusive guiding compass. Though the VIX certainly presents interesting data, its utility as a predictive tool is debatable. At the most elemental assessment, if the VIX was even modestly prescient — meaning a better than a coin toss odds of predicting future events — all traders would eventually use the metric to pick up easy profits.

Advertisement

As well, the VIX is the output of a mathematical formula, forcing an interpretive profile. Benzinga contributor Bob Lang hit the nail on the head when he stated, “For most long-term investors, it’s not as much to hit the exits when volatility rises, rather it’s an understanding of what is actually happening – panic and hysteria.  Big moves in the VIX are often temporary and only last for a period of days, and then it falls.”

In short, the VIX is useful, but don’t put all your eggs in this basket.

Are We in a Recession?

The next question that everyone is wondering about is, are we in a recession? Technically, the answer is no, but the substance of this response involves complexities. According to a recent article by The Wall Street Journal, no precise definition of a recession exists. In fact, the National Bureau of Economic Research (NBER) has the unenviable task of being the bearer of bad news.

Per the agency’s definition, a recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” However, even the NBER is not consistent with its framework. Glaringly, it declared the downturn immediately following the COVID-19 disruption as a recession even though it only lasted a quarter, based on information provided by the U.S. Bureau of Economic Analysis.

While investors are inherently curious about whether the current downturn qualifies as a recession, it’s vital to keep in mind that an official declaration of such has almost no value to those seeking profitable trades in the capital markets. Once the public realizes that an economic downturn is in the books, the equities sector has already priced in this reality.

Advertisement

For instance, last year’s incident involving the collision of the USS Connecticut with an uncharted seamount (underwater mountain) could have been avoided had the commanding officer of the submarine turned on its sonar. But doing so would alert surrounding warships to the Connecticut’s presence, thus rendering the whole concept of “silent service” moot.

It’s the exact same principle when discussing a recession as it relates to a possible stock market crash. You need to make a move before an event happens to truly capitalize on it — and this necessarily involves taking a shot in the dark.

Market Indicators to Watch for

At its root, any investment that you make involves risk. Bluntly speaking, if a future market outcome was guaranteed, all rational actors would place their orders accordingly. At the same time, not knowing how circumstances will transpire represents the basis of profitability. Usually, the greater the risk (or the magnitude of the underlying ambiguity), the greater the reward.

But this dynamic doesn’t necessarily mean that you must fly blind. In contrast, you can deploy certain market indicators to better determine the possibility of a stock market crash and an incoming recession.

  • Moving averages: Analysts will often refer to the “death cross” where the 50-day moving average of the S&P 500 index dips below its 200 DMA. While this demarcation is interesting, investors should also note how the price action responds as it approaches these commonly watched averages. Following a death cross signal, should the S&P 500’s 50 DMA act as a resistance barrier to upside momentum, this may be a clue that the bears have control of the market.
  • Unusual options activity: Everyday, traders pour into the derivatives market and place bullish or bearish orders on options contracts, which are financial instruments that give owners the right but not the obligation to purchase the underlying asset. But in certain cases, the ratio between the volume and open interest of specific options exceeds normal boundaries. Investors can reference these unusual dynamics as a real-time gauge regarding what other traders are doing.
  • Velocity of money stock: An economic indicator as opposed to a market indicator, the velocity of money stock (specifically, the M2 money stock) is one of the most important yet underappreciated warning signs about a possible recession. Essentially, this metric represents the rate at which each unit of currency circulates throughout the economy. Given that the reading is near all-time lows, the Federal Reserve’s hawkish monetary policy absolutely risks sending the economy into recession as a low money velocity is necessarily deflationary.

Stock Market Platform Comparison

While the present rumblings in the market may be unsettling, it’s worth reminding yourself that the greatest wealth is often attained through investing in the most difficult of circumstances. To help navigate these challenging times, you should consult platforms like these, which may give you the edge you need for stock market success.

Current Stock Movers

There have been no price changes in this timeframe.

Advertisement

Jun 20, 2022 4:00 pm – Jun 21, 2022 10:30 am

Frequently Asked Questions

Why is the stock market crashing?

As academic research confirms, one of the main causes for a stock market crash is that the implied risk of holding onto a tradable asset is greater than the potential reward. Under standard economic theory — per the Chicago Booth Review — “investors borrow during good times and put the money to work in the stock market, where they expect to earn higher returns than the interest they owe on the loans.” Once this circumstance no longer rings true, a market crash becomes a higher-risk probability.

Advertisement

Will the stock market recover in 2022?

While anything is possible, investors should prepare for the stock market not to recover in 2022. On a simplistic level, if you gird yourself for a downturn but one never materializes, it’s a bonus. More importantly, though, the nearly $5 trillion in stimulus packages issued during the COVID-19 crisis will likely not repeat. Therefore, the Federal Reserve may not have the monetary ammunition to bolster the equities market should another negative event materialize.

Advertisement

Brave Group Inc

Japanese Virtual IP Firm Raises $10 Million To Accelerate Metaverse Business

Published

on

Japanese Virtual IP Firm Raises $10 Million To Accelerate Metaverse Business

Brave Group Inc., a Japanese virtual IP firm, recently said it had raised $10 million in new capital and that the company expects to use part of these funds to boost its “solution services for clients in the metaverse marketing business.” Taking part in Brave Group’s latest funding round were two local companies, foreign investment funds, as well as individual investors.

Metaverse Market Growth

A Japan-based virtual IP business, Brave Group Inc., recently said it had raised $10 million in new funding, thus bringing the total raised so far to $18 million. The company is set to use the new capital to strengthen its existing business operations and to “expand its solution services for clients in the metaverse marketing business.”

In a recent statement, Brave Group revealed that Japanese companies like Dawn Capital and Osaka Gas Co. Ltd. had participated in the round that also featured “foreign investment funds and individual investors.” In remarks following the announcement of the capital raise, Kazuhiro Ishikura, a general partner at Dawn Capital, said:

Advertisement

As the boundary between real and virtual life disappears, the form of entertainment will also change, and new IP content KOLs are expected to be born. As the metaverse market grows globally, we believe that the Brave group’s content will be at the center of the enthusiastic virtual communities that will emerge. We hope that the strength of the anime and manga culture that Japan has cultivated over the years will be brought to the world virtually.

Yuichi Sakamoto, senior general manager with Osaka Gas’ innovation department, is quoted stating his company is ready to help Brave Group Inc. “realize lifestyles and businesses that respond to the New Normal.”

For his part, the CEO of Brave Group Inc., Keito Noguchi, said through the $10 million fundraise, his company would now “maximize the impact of Brave group’s IP not only in Japan but also in the world.”

What are your thoughts on this story? Let us know what you think in the comments section below.

Terence Zimwara

Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.

Advertisement

Advertisement

Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Advertisement

Continue Reading

Saddle.Finance

Saddle․Finance Creates New Standards For DeFi Trading

Published

on

Saddle․Finance Creates New Standards For DeFi Trading

sponsored

DeFi is a sub-sector in the crypto industry that has witnessed significant innovation since its inception. However, the narrative has struggled to stay consistent, affecting the domain overall. The current bear market has wiped out more than half of DeFi Total Value Locked (TVL), hampering innovations. Furthermore, several projects have simply forked (copied) existing protocols and brought zero ideas to the market.

Advertisement

Amidst all of this, one project is making strides with the best innovations DeFiers have seen in a long time. Saddle Finance is the protocol that enables efficient DeFi trading for stablecoins and pegged-value crypto assets like wETH and wBTC. It redefines DeFi trading by offering cheap, efficient, swift, and low-slippage swaps for traders and high-yield pools for Liquidity Providers. The protocol has facilitated over $2B in transaction volume to date.

Enabling an Efficient and Secure DeFi Trading Experience

Saddle Finance is an AMM-based decentralized exchange (DEX) running on multiple blockchains, including Ethereum, Fantom, Arbitrum, Optimism, and Evmos. It is designed specifically for trading stablecoins and pegged crypto assets.

The platform is ideal for HODLers and newbies because of its easy-to-use interface. Its strongest point, however, is that it ensures minimum slippage while swapping assets. This is accomplished through innovative liquidity pools that use the StableSwap mathematical formula to maintain market liquidity.

The protocol is also known for its top-notch security. It has been audited by some of the best auditing firms in the sector, including Certik, Quantstamp, and OpenZeppelin. Moreover, the platform is backed by several renowned venture capital firms like Polychain Capital, Electric Capital, Dragonfly Capital, Framework, Coinbase Ventures, Nascent, and BoostVC.

Advertisement

The project’s most intriguing aspect is its open collaboration. Saddle’s code is completely open-source, inviting Web3 developers to join the mission and build on top of the protocol. Moreover, its recent SEMPI project has enabled developers to get compensated for developing and forking the protocol.

$SDL: The Utility Rich Token Powering Saddle Ecosystem

$SDL is the native utility token of Saddle Finance. Its use cases revolve around staking, yield farming, and governance. The platform recently announced the completion of $SDL’s first vesting stage. Thus, users who provided funds to its liquidity pools can now trade and transact $SDL tokens.

They can also stake $SDL on saddle.exchange to earn rewards and receive the $veSDL tokens. $veSDL is the vote escrowed (ve) token that will serve as the platform’s governance token. Stakers will be able to vote with $veSDL and manage the $SDL supply in associated liquidity pools. Beyond that, users can provide liquidity to the SDL/WETH pair on SushiSwap

In the future, Saddle also plans to create more initiatives to take the protocol to the next level. These include migrating to on-chain governance, adding liquidity to $SDL through Tokemak, and introducing a new gauge to unlock extra staking yield boosts. The protocol will also issue bonds through Olympus Pro to generate more protocol-owned value.

Advertisement

Similarly, launching a borrowing function against liquidity providers and adding leveraged yield farming through Rari Capital’s Fuse is also part of the plan. Lastly, Saddle intends to improve its virtual swaps and launch new services where users can deploy their own customizable pools.

Building the Future of DeFi

Although the current bear market has hit DeFi hard, the sector’s long-term potential is enormous. Innovations are critical in keeping this space alive. Saddle Finance is thus heavily focused on creating innovative solutions in DeFi. Its stableswap model, along with robust tokenomics, is an excellent example of genuinely innovative solutions.

The $SDL token and its utilities across various protocols clearly indicate token-level innovation. It is now tradable on the platform. Join the emerging revolution by staking $SDL on saddle.exchange—contribute to DeFi’s future while earning passive income.


This is a sponsored post. Learn how to reach our audience here. Read disclaimer below.

Advertisement

Bitcoin.com Media

Bitcoin.com is the premier source for everything crypto-related. Contact ads@bitcoin.com to talk about press releases, sponsored posts, podcasts and other options.

Advertisement
Advertisement

Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Continue Reading

China

Chinese State-Run Media Warns About Bitcoin’s Price Falling To Zero As Regulators Issue Fresh Crypto Warning

Published

on

Chinese State-Run Media Warns About Bitcoin’s Price Falling To Zero As Regulators Issue Fresh Crypto Warning

A Chinese state-run newspaper has published an article warning about bitcoin’s price falling to zero amid the crypto market sell-off. Meanwhile, financial regulators in Shenzhen have issued a new warning about cryptocurrency.

State-Run Newspaper Warns About Bitcoin Becoming Worthless

China’s state-run newspaper Economic Daily published an article warning about bitcoin Wednesday, according to SCMP. The nationwide newspaper is directly under the control of the Central Committee of the ruling Chinese Communist Party.

The article warned that investors should beware of the risk of bitcoin prices “heading to zero” amid the recent crypto market sell-off.

Advertisement

“Bitcoin is nothing more than a string of digital codes, and its returns mainly come from buying low and selling high,” the newspaper details, adding:

In the future, once investors’ confidence collapses or when sovereign countries declare bitcoin illegal, it will return to its original value, which is utterly worthless.

The newspaper details that the lack of regulation in Western countries, such as the United States, helped create a highly-leveraged market that is “full of manipulation and pseudo-technology concepts.” The article describes it as an “important external factor” contributing to bitcoin’s volatility.

The warning from the state-run media reflects Beijing’s firm stance against cryptocurrency and related activities that the government has outlawed.

New Warning About Crypto by Chinese Regulators

On Tuesday, the Financial Regulatory Bureau of Shenzhen, the Shenzhen Central Sub-branch of the People’s Bank of China, and the Shenzhen Development and Reform Commission also jointly issued a warning that investors should be vigilant of illegal financial activities relating to crypto and how to avoid being scammed.

The notice states that virtual currency trading and speculation “seriously endanger” the safety of people’s property and breed gambling, illegal fundraising, fraud, pyramid schemes, money laundering, and other illegal and criminal activities. It also claims that they disrupt the country’s economic and financial order.

Advertisement

The financial authorities cited a statement published in September last year by China’s central bank, the People’s Bank of China (PBOC), and 10 ministries and commissions declaring that virtual currency is not legal tender and related activities are illegal financial activities.

What do you think about the state-run newspaper publishing a warning about bitcoin’s price sinking to zero and the Chinese regulators warning about illegal crypto activities? Let us know in the comments section below.

Kevin Helms

A student of Austrian Economics, Kevin found Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open-source systems, network effects and the intersection between economics and cryptography.

Advertisement

Advertisement

Image Credits: Shutterstock, Pixabay, Wiki Commons, lev radin

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Advertisement
Continue Reading

Trending

Get our daily News updatesSignup to get instant updates straight to your email