The era of ultra-cheap money is over, and the historic shift is a notable threat to tech equities and digital tokens.
The speculative darlings of the easy-money era -- technology stocks and cryptocurrencies -- are acutely vulnerable now that the Federal Reserve is shrinking its nearly $US9 trillion balance sheet.
The era of ultra-cheap money looks over for now. The Fed’s balance-sheet drawdown is seen lasting more than a year, while nearly two-thirds of survey respondents say the four-decade bull run in Treasuries has come to an end. The MLIV survey of most-at-risk assets in the QT era canvassed a group ranging from retail investors to market strategists. Just 7 per cent picked mortgage-backed bonds -- securities that were at the heart of the 2008-09 meltdown -- with almost half citing tech and crypto.
Fuelled by pandemic-era policy easing, the tech-heavy Nasdaq 100 Index climbed more than 130 per cent from its March 2020 low before plunging this year.Since March 2020, there has been a strong positive correlation between Bitcoin and the Nasdaq 100, with the relationship intensifying in this year’s selloff.
Respondents who were active in the market during the financial crisis more than a decade ago are particularly concerned that the Fed’s balance-sheet shrinkage will hurt junk bonds. Newer entrants are more inclined to worry about its impact on crypto and tech shares. Just 10 per cent voted for problems related to bank reserves and short-term funding markets. That’s an implicit vote of confidence in the measures the Fed has taken to avert logjams in the financial plumbing that caused it to intervene in 2019 during its previous tightening program.