PWN's bear market deep dive
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September 5th, 2022

Patience is a virtue when it comes to crypto. Let's summarize what's happening in today’s macro environment and most importantly the opportunities that come with this bear market and what role PWN can play in it.

Inflation

Inflation is at its peak, currently at 8.5% in the United States (and higher in a number of other countries), the highest it's been since 1981. Tough times are on the horizon, and unfortunately, the majority of people are clueless about this (except cryptonatives, of course!).

There’s so much uncertainty in the markets at the moment. Who knows what might happen? We'll need to wait and watch.

To reduce inflation, it’s necessary to reduce the amount of money currently circulating in the economy. From the chart below, you can see that there’s currently more liquidity in the system since the start of June 2022 (this should be the other way around).

Is the FED playing politics at the moment? We think so. Could it be to give some relief to stocks and cryptos and what would help the democrats with the US midterm elections coming up in November?

Bitcoin (yellow) vs. USD liquidity conditions (white)
Bitcoin (yellow) vs. USD liquidity conditions (white)

Image credit: HackerNoon

Housing market

The housing market in the US is starting to come down. New home sales have dropped way below expectations. There is a higher supply of houses in the market, so we’re in a recession, but the FED doesn’t want to accept this fact. This doesn’t come as much of a surprise, as it was them that changed the very definition of a recession!

The USD index

The US dollar is getting stronger, and this is causing everyone to panic. You would think that strong means good, but the truth is that it’s just making everything so much more expensive. Take stocks or $BTC as examples: They're both becoming cheaper relative to the US dollar. The last time there was parity between the EUR and the USD was during the dot com bubble. Since then, the euro has been stronger than the dollar. It's the first time we're seeing the dollar stronger than the euro in a long time. What does this mean?

  • The US is not exporting as much because it’s expensive

  • The US will start importing a lot more than exporting, which causes problems

The eurozone is also going into inflation. Most countries have their debt denominated in USD, from emerging markets to countries in the eurozone. If a country has their debt denominated in USD and the dollar is becoming stronger, it means that they will need to work much harder to repay debt.

What’s happening with energy and oil?

There has been an overall downward trend of oil prices since June 2022 which has been bringing down inflation. But why has the price been going down? The US has been depleting its strategic oil reserves to bring down the price of oil ahead of the midterm elections in a few months. Current reserves hit the lowest since January 1985.

Recent news says that Saudis have decided to “play the game” and will stop oil production.

Now, we have the Saudis and China throwing punches at the US before the midterm elections, which is never a good sign.

Crypto: Bitcoin & Ethereum

People are scared at the moment, and the fear and greed index is currently at 23. With this being the case, who isn't fearful?

The answer to the question above is ETH investors: They're less fearful than other investors. We're 8 days away from the merge, and there are a lot of people buying ETH. According to a recent coinshares report:

  • There is a mild negative sentiment on Bitcoin, which has seen a third consecutive week of outflows totaling $15M

  • Ahead of the Merge, Ethereum has seen a 9-week run of inflows totaling $162M

Crypto: Liquidations in the market

Liquidations in the market continue with over $63.71M liquidated in the last 24 hours alone in the crypto market. Last week in one day, there was over $163M liquidated in crypto! We won’t take you through what you’ve already heard about liquidations; instead, we want to bring you new information.

Image credit: Coinglass

You may have seen that the NFT market has taken a slight hit in the past couple of weeks. Last month, there was a massive liquidity crisis caused by over-leveraged BAYCs on BendDAO. Depositors were fearful that BendDAO would fail due to these over-leveraged loans, and in response, they withdrew their assets en masse. 

The result? BendDAO’s reserve fell to 15 wETH from more than 18,000 wETH in just 48 hours. In response, NFTs held as collateral were at risk of being liquidated.

Here was PWN’s response to Cirrus’s thread:

You can check out the live liquidations on BendDAO.

What’s next?

September is set to be a busy month, as is shown below.

Given all that we’ve discussed above with this macro update, what does it all mean for PWN?

Stay tuned for our upcoming post that will dive into the details of and differences between peer-to-peer and peer-to-pool lending. We’ll be presenting an in-depth look at four opportunities in which PWN is the perfect solution to the issues that we’ve explored in this post.

In the meantime, make sure to stay in touch by following PWN on Twitter and joining the PWN Discord community.

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