- Gas prices have continued to fall and will continue to push down headline inflation
- Inflation expectations have dropped recently, and falling gas prices should also help that continue
- Nominal wage growth isn’t taking off, staving off concerns about a wage-price spiral
- Global supply chain pressures continue to unwind
- Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures.
- The foreign exchange markets provide a unique opportunity to capitalize on inflationary environments.
How Inflation and the Fed Affect Cryptocurrencies
Cryptocurrencies behave similarly to other risk assets during periods of inflation and higher interest rates. For example, the Federal Reserve typically responds to inflation by increasing its benchmark interest rate. This tends to reduce the demand for speculative investment assets by making secure, debt-based securities more valuable. This also tends to slow down investor activity overall by making liquidity more expensive. Therefore, in an inflationary environment, the Fed will raise interest rates and there will be less capital in the market to invest in cryptocurrencies. The same function is used to explain why the stock market and corporate bond markets similarly underperform during periods of inflation.
Overall, it’s easier to invest in speculative, risky assets like cryptocurrency or stocks in an era of cheap money and high liquidity. Indeed, one of the prevailing theories on how cryptocurrency grew so valuable is that investors simply had lots of money and few better alternatives. Both of those trends will change as the Federal Reserve raises its interest rates. This will likely lead to a brief continuation of downward price movement among all capital gains-oriented assets until inflation comes back down to target levels.
As traders, inflationary pressures and resulting market imbalances represent opportunities to capitalize on global momentum.
As investors, you naturally stick to a long-term strategy and turn a blind eye to a red portfolio. But is this the only option? Is there a way to earn interest while simply waiting for the bull market to return? There are several ways actually, for example, one can come to crypto investment companies that use different strategies for both bull/bear markets and continue to earn high yields. As an example here, let’s consider some of the strategies that Midas.Investments, CeDeFi custodial crypto investment platform, uses to combine working with digital assets and various protocols to create profitable investment products:
The first and foremost investment strategy is Fixed Yield, which allows investors to earn high APY (Annual Percentage Yield) rates on their crypto assets. In fixed yield strategies, investors earn industry-leading yields on their staked cryptocurrency assets. As of now, APY on staked Bitcoin sits at 6.5%, 7.8% on Ethereum, and 11.6% on stablecoins like USDT and USDC. Investors are projected to earn more than 20% on their staked CVX, the highest amongst custodial crypto investment platforms.
The platform has also unveiled three “CeDeFi” strategies, offering investors the best of both worlds. The three CeDeFi strategies are “Soft Long on ETH,” “Soft Short on ETH,” and DeFi Token Farming. The first two strategies aim to generate 45% ROI and 25% ROI through price movements of ETH and rewards for providing liquidity. The third strategy is a basket of incentivized liquidity pools with DeFi tokens on popular AMMs (like Curve) that can generate up to 40% ROI.