Is crypto contagion about to wreak havoc on the financial markets?
Peak crypto euphoria November 2021, almost a year ago today, the market capitalization of crypto was valued at 3 trillion dollars globally.
Today crypto global market capitalization is about $ 804.94 B at the time of writing this piece.
In other words, approximately $ 2.2T of crypto wealth has vanished over 12 months, representing 74% of crypto global peak capitalization. Some stablecoins pegged to USD have collapsed overnight.
Crypto Contagion
So $2.2 trillion of capital destruction has triggered a credit squeeze and the collapse of several crypto exchanges, crypto lenders, crypto hedge funds, and crypto miners.
The ecosystem in the crypto firm entails firms interconnected, lending to each other and making significant leveraged bets on the tokens, bidding up the tokens, which makes contagion more likely.
Wider contagion
The wealth destruction in the crypto space could lead to widespread contagion.
SO FTX embezzled funds from its investors, then fraudulently used those funds in an affiliated company, a cover company, Alameda Research, which was scant on research and high on loss-making bets.
Following the company being declared bankrupt, reports are emerging that funds are missing, perhaps due to a hack.
Frankly, this latest saga would make a best-selling financial crime novel.
The worst financial fraud case, was the SEC asleep at the wheel again?
Contagion comes from the criminality that has become entrenched in the system. The ruling western elite acts like first-class passengers on the doomed Titanic, looting everything of value on a sinking ship and making way to the reserved liferafts.
The metaphoric life rafts were central banks creating trillions of dollars of currency, during the global lockdown, fuelling the bubble of everything.
That enabled the financial aristocracy and their criminal cohorts to exit at the top, leaving the populous, neo-serfs, with inflation (worthless currency), massive debt, and collapsing asset prices.
In the crash of everything in 2022, there was no safe haven because the true mantra should read, we, the global elite, will own everything, and you’ll own nothing and be happy.
Contagion could come from a legitimation crisis
Investors are becoming so nauseated with the systemic corruption that third-party trust could collapse. The revolving door between highbrow finance, politicians in senior positions, and CEOs fosters a fascist self-serving corrupt system, unrepresentative of the people, and on a self-destruction course.
So as central bank tightening exposes the corruption and the fraud, investors start fretting about where the next financial corruption scandal lies.
Investors start questioning the viability of public accounts, and then there is a run on sovereign bonds and the currency collapses.
In a piece entitled, The Emperor Has No Clothes, I wrote,
We are on the cusp of a systemic crisis, a potential social collapse triggered by hyperinflation in food energy.
“Currency debasement and a sovereign debt crisis could be dead ahead.
The coming crisis is a central bank crisis of confidence in the paper that it underwrites.”
Holding U.S. Treasurys? Beware: Uncle Sam Can’t Account For $21 Trillion.
The embezzlement of funds could also be in the public arena.
Perhaps we are witnessing the preliminary stages of the collapse of everything, which triggers contagion and a currency meltdown
Civil unrest and bank run soon followed.
The Roman Empire ended with rampant corruption, ruthless ambitions of the eleties, decadence, perversion, political clashes, civil unrest, and war. Are we in the twilight of the US Empire, the end of US unilateral hegemony?
Contagion in the Empire
But the satellite colonies are in a worse state.
The cost of living crisis in the European Union zone is concerning, as inflation hits double digits at 10.9% in September. For low-income households with little or no income after non-discretionary expenses, the inflation rate is probably much higher.
German industry is staring into the abyss as spiraling energy costs mean many businesses are now faced with the harsh reality of either shutting down or relocating elsewhere.
So, the engine of the EU economy, Germany, an industrial juganot and export giant, is sputtering as the attack on the North stream pipeline has cut off a reliable source of affordable energy.
With the ongoing war in eastern Europe, the EU is facing energy and food supply shocks, stagflation, monetary tightening, deindustrialization, and likely austerity. How long will the Germans, who have been advised to shower less to save energy, be able and willing to bankroll the southern countries?
A peripheral sovereign debt, EU contagion crisis worse than 2013 could be on the cards
Spanish mail launches a communist stamp, and Italy launches a new monument to fascism.
Across the English Channel, the UK is in a pitiful state battling Brexit and facing the longest recession in its history, according to the Bank Of England. So with bank rate hikes and tax increases, another Great Depression is a virtual certainty.
The economic and financial decline and the contagion will be particularly acute as decades of globalization, malinvest unwinds, and corruption is exposed.
Central bank tightening has spotlighted malinvestments and corruption in the system.
When the spotlights are dimmed or turned off, pig with lipstick investments are impossible to spot. Everything looks the same in the dark.
The contagion ends when the central banks let the music play
Let the music play, keep creating currency and inflate the debts away…on and on. When central bank money is flowing, and the lights are dim, even the pigs with lipstick assets pull the punters.
But those investing, beware, use this opportunity to buy value.