HomeMarketsInternational MarketsCrypto Markets As Liquidity Reservoirs & China Reopening
Crypto Markets As Liquidity Reservoirs & China Reopening

"Crypto markets have proven repeatedly to be 'liquidity reservoirs,' whose role is to soak up liquidity from the economy and traditional markets when there is too much money sloshing around and release it when there is not enough. When there isn’t enough liquidity to go round the crypto market crashes. So, the crypto blowups are just a lagged response of the aggressive liquidity drain imposed by central banks for a year now. It’s an effect, not a cause. The U.S. Federal Reserve appeared to signal an intention to slow the pace of rate hikes to from 75 basis points to 50 bps in December. Norway's central bank has stepped down from 50 bps to 25 bps as did the Reserve Bank of Australia. The Bank of Canada surprised by hiking at a smaller rate of 50 bps rather than the expected 75 bps. And the central bank of one of the largest emerging market economies, Brazil, and the central bank for the largest emerging market economy in Europe, Poland, both left rates unchanged. Also, signs suggest that China’s authorities are making preparations for reopening. In reaction, the MSCI China Index of Chinese stocks is up 21% so far in November, that compares to just 2% for the S&P 500. This surge has propelled outperformance by emerging market stocks," says Jeffrey Kleintop.

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