Dear Reader,
The prices of technology stocks listed mainly in the US, but also globally, have fallen since the 12th of February 2021.
The fall in technology stocks' prices is driven by the increase in the yields of US government bonds followed by rising yields of government bonds of many countries all over the world.
Since government bonds of the major economies especially are considered risk free any marked increase in the interest rates one receives by investing in government bonds increases the attractiveness of government bonds and diminishes the allure of all other classes, especially investments entailing higher risk like investing in start up technology companies, slightly more mature private technology companies, but also technology companies listed on US and global exchanges.
What is more, both listed and private technology companies have definitely become overvalued over the past two years driven by money creation of central banks, low interest rates and a reach for yield.
Bitcoin is a new and very interesting phenomenon. Bitcoin was not in existence in the 2000-2001 dot com bust of the prices of technology stocks companies. That said, Bitcoin's price in USD has fallen by circa 17 % in the last weeks.
I forecast Bitcoin will fall more than the Nasdaq Composite. If the yield on 10 year US government bonds goes up to 3 %, I forecast the Nasdaq Composite could fall by 40 % from its recent all time highs, while Bitcoin's price could fall by 60 % from recent peaks.
Will the fall in Bitcoin and technology stocks' price continue? It depends very much on the reaction of monetary authorities. If the Federal Reserve decides to intervene and save everyone like in March 2020 at the onset of the coronavirus pandemic, then the current situation will prove a great buying opportunity. If, however, the market is allowed to clear many now well known technology companies could go bankrupt, Bitcoin's price can fall more than 60 % from the recent historic highs.
What will happen? I forecast the Federal Reserve will take the middle ground. The Federal Reserve will allow interest levels to rise even more from current levels, but will also intervene at some point to prevent the monetary system from falling apart.
I envisage that the Federal Reserve, The European Central Bank, The Bank of Japan, The People's Bank of China and The Bank of England will facilitate even more the advent of Bitcoin and cryptocurrencies. Some leading central banks can even soon issue cryptocurrencies of their own, so called stable coins.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
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