The “Everything Bubble” finally burst in 2022
A Bubble or Boom is an exciting time for investors to capitalize on the rising prices and gain profit from it but unfortunately what’s painful for many is when that bubble finally bursts. 2022 was termed as many as one of those unfortunate times with the bubble that has been gaining steam throughout 2020 and 2021 finally bursting. So let’s take a look at some of the events when those bubbles burst in 2022 and what would be fair expectations for the global economy in 2023.
The Bubble finally burst….
If there was any phrase to describe how the economy turned out last year it would be “whatever comes up will eventually come down.” 2021 has been a year of ups generally for the whole economy as assets were hitting all-time high and sentiments were high as the world was heading the post-pandemic era but these highs wouldn’t last long as a year later it would fizzle out thus creating 2022 to be a year of recovery for everybody.
In general, more should create more, right? Isn’t more growth in the economy supposed to generate more value for its businesses and assets? Unfortunately, this theory becomes contradictory when we talk about the general flow of the economy and Bubbles. So, what is a bubble you may ask? A bubble, in an economic context, generally refers to a situation where the price for something — an individual stock, a financial asset, or even an entire sector, market, or asset class — exceeds its fundamental value by a large margin.
The basic characteristic of a Bubble is usually when there is a suspension of fundamental investing amongst the participants as speculative prices start to surge massively and when the bubble finally bursts, only then the real value starts to show. Bubbles also exist when there is a new breakthrough and innovations that are introduced to the market, with the hype behind the idea resulting in speculative valuation and causing a bubble.
Bubbles are an important part of the economy as it functions as a stabilizing factor for when the economy becomes too outstretched and a mirror to look for true value when the participants become too lost in speculation. Part of the catalyst towards a Bubble can also be examined when a government adopts an expansionary monetary and fiscal policy to help prop up the economy usually after a major crash or global issues.
This is exactly what happened in 2020 as the Pandemic not only forced the world towards a lockdown but also put the global economy at a stand-still with the markets falling out of place. With the global GDP growth rate standing at (-3.12%), it was a steep decline of more than 5% from the 2019 figures. This then prompted governments around the world to loosen their Monetary Policy and Fiscal Policies by reducing interest rates to ensure that businesses and jobs are protected while also handing out stimulus checks in order to protect people’s well-being.
These measures would cause two things to simultaneously happen: the price of assets going through the roof causing a bubble and an increase in the government’s money supply. Due to a large amount of supply flowing to the markets, many prices of assets such as stocks, commodities, and digital assets went into a bubble phase with speculation ever increasing. This also created the term “Everything Bubble” as every asset price was increasing and triggered the government to deploy countermeasures to contract the economy.
From tech — stocks to meme coins, it seems like everything in 2021 has the capability to reach all-time high as long as you have the hype and a huge following. Nasdaq went on doubling its 2020 figures by reaching an all-time high of 16,000 while Bitcoin went on a more rampant streak with an increase of 600% to its all-time high figure of $69,000. Even commodities like Gold, Nickel, and Crude Oil saw a 25% increase in their figures.
These conditions might be good for a day-to-day trader but not sustainable for the economy in the long term as these bubbles far outweigh the real value of the assets. A great example of this is what happened with Gamestop, an offline retail gaming store whose stock and the company were barely surviving in 2020 but became the best-performing stock in early 2021 due to huge backing from the Reddit forum community. In the end, the stock returns to its original value and results in a major loss for almost all of its participants.
If you take a closer look at the DeFI space, the same thing happens with NFT and the Metaverse as Pictures and Virtual Land suddenly are worth thousands of dollars. Unfortunately, all of these bubbles finally burst in November 2021 when the FED started to tighten its policy by raising interest rates and reducing the money supply flowing into these markets. These would then slowly result in a crash as what people deemed to be and bringing these assets towards their natural value.
The downtrend continued until today as interest rates further increased in 2022 putting the economy towards a recovery and cautionary state. The Bubble in 2021 was a lesson for all its participants in assessing the value of an asset and setting achievable expectations for the economy. People are always setting high expectations when the economy is in a boom phase but they should also be prepared whenever the growth stops and the bubble finally burst.
Expectations for 2023
2022 might not be the best year for the economy but the year does end with an expected 3.4% GDP growth rate and with plenty of positives to look out for in 2023. The forecast for 2023 will fall a bit currently but should stand at a respectable 2.9% — 3–5% while it is expected to increase by 0.5–1% in 2024. This number might not be the greatest forecast when the GDP was at an all-time high a couple of years ago but it does present a significant improvement from the minus GDP Growth in the Pandemic Era.
Inflation is also expected to reduce from 8.8% to 6.6% during this year which is good news after the tremendous pressure we experience during 2022. Inflation reduction also means a reduction in the price of all assets including digital assets as the economy will be a more cautious one for this year. This also means that DeFI will see a reduction in activity for this year while the number of users should continue to increase as interest in the space remains high.
2023 is expected to be a year of recovery for some digital assets that have potential over the long term but don’t expect it to be at an all-time high soon. Ethereum and Bitcoin have shown massive progress in the first months of 2023 with both recording an increase of 25–30% with still progress to come in the rest of the year.
In conclusion, 2022 saw a horrendous year for DeFI with values spiraling downwards and collapse happening all over the space but we should expect 2023 to not be the same case. 2023 should be the year when the economy moves to a cautionary state as interest rates are high causing investing to become more expensive this should be the chance for a truly valuable asset to shine as investors will look to beat the cost of borrowing with sustainable returns. The question is which one will stand out this year?
We in Nagaya Technologies Pte. Ltd would like to begin the year 2023 by saying thank you to all our readers, subscribers, and holders who have loved our content. We hope that heading into a new chapter in 2023 will be a great year for all of us. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya.io
Or you can talk to us at t.me/nagayaofficial
