So lets say the worst happens and some of these big funds are forced to liquidate their holdings as they're over leveraged on cheap margin (during the past year the banks increased their lending to increase liquidity during the pandemic, that money went to funds who bought in at market lows causing the stock market to rise). The people who lent them money are afraid of a downturn in the market that would lose them their principal, and are now trying to get it back at .75 or less on the dollar and not end up as bag holders who didn't get any of their loaned money back. When the lenders liquidate the funds to get their money back they'll sell the funds holdings at a discount (this is the cents on the dollar), tanking the markets in large block sales (ex: Viacom, Discovery).
During the housing crash the Government jumped in to bail out the banks (the bagholders of junk housing bonds), the DTCC (rule 2021- 004) said they're not planning on doing that (bailing out the bagholders). Leaving the Government as a possible lifeline.
If the government tries to bail the lenders who didn't get their money out, they'll make the dollar less valuable and force even more printing causing a downward spiral leading to hyperinflation and a weak dollar with very little buying power.
If the government doesn't bail out the bagholding banks they could fail, also tanking the market. This would lead to a downturn in the market until those with cash reserves will buy in at huge discounts (>90% in some cases).
Does this mean Bitcoin is the savior in either situation here? Laws of supply and demand say no. How many large institutional investors would cash out their bitcoin to USD to cover their other assets? Unless the DTCC starts allowing you to buy shares in companies directly with bitcoin, this event could also bring Bitcoins value down at least in the short term.
There are some BIG assumptions here.
Do you agree?
No comments:
Post a Comment