Эрдсийг эрдэнэст
Ирээдүйг өндөр хөгжилд
Mining The Resources
Minding the future

Crypto-Coins and monetary policy

The Mongolian Mining Journal /Feb.2023/

Ts. Elbegsaikhan

There are two ways to get people to act on their own. The first is to encourage or promise them a reward for taking a certain step. The second is to control or punish them based on fear. Crypto-coin investors are affected in both ways. First, there is the naive expectation that the coins they buy will grow and generate huge profits. Some may have even planned an expensive vacation to the tropics. Second, is the fear of being left empty-handed when everyone says you can buy and sell coins and make lots of dollars.

This is observed not only in Mongolia. And it is not for the first time either. This is the nature of human behaviour . You could say that this phenomenon has always occurred in  financial and capital markets, in every period of economic overheating. In the world, this phenomenon is known as FOMO (Fear Of Missing Opportunity). Only this time the FOMO field was coins.

One thing is certain, even if there were no Mongolian coins, there is a good chance that these losers would still be losers today. Because there are underlying economic factors  big macro-policy mistakes, and loopholes.

The so-called post-pandemic recovery began in 2021, with the exception of China. Mongolia also had an unprecedented soft monetary policy. It was a time when the government implemented unimaginable programs worth trillions of MNT, and the market was full of money. During this period, the Mongolian stock market doubled and the top-20 index rose 130%. The first MNT trillion company was launched on the Mongolian stock exchange.

Compared to that, the money invested in coins is a tiny fraction. Ten trillion MNT is an amount that could nearly double the size of our economy. The policy interest rate was half what it is today. Only money was available in an economy where factories stopped working, services closed their doors for a long time, people were no longer seen on the streets, and remote areas were left without supplies. Today, everyone knows and talks about why inflation is rising and why the U.S. dollar continues to strengthen. But no one mentions that coins also follow the same logic.

In fact, we mustremember that originally the “coiners” or the crypto-industry tried to set the right standards and high thresholds for their industry. The Digital Assets Law was drafted and approved with input from all parties. However, policy reversals and cyclical changes are not something that either “coiners” or businesses can control.

Monetary policy tightened so sharply that it became risk-free and profitable to invest in savings and bonds rather than to buy stocks and coins. Government programs ended. The economy opened up and people had to spend money on their businesses. With the opening of China's borders, the flow of money shifted more toward imports. In short, people still believed in coins, but they didn't have the money or time to spend on coins. But everyone tried their best to make up for  lost time.

It  is time to discuss the measures taken by the central bank. I was wrong to think that the central bank, which aims for an inflation rate of 6%, was trying to absorb free money in the market and reduce demand by doubling the interest rate in six months. On the contrary, the money supply has increased by about 50% since the beginning of 2020.

Now we know why inflation is not going down. I suspect that China's Covid lockdowns and Zero-Covid policies have nothing to do with it. The fact that the money supply is up 50% and inflation is 12-14% is a sign that we have discipline. It should be emphasized here that by "printing" money and raising interest rates, the authorities are serving the interests of rich people and helping them become even richer. However, people who invested in coins and stocks and lost out have found it harder to make money at higher interest rates and get on with their lives.

Thus, FOMO victims may not just get away with coins. We are experiencing a situation where the anger flowing from Beltes Murun LLC into coin investments could topple the stock market. There is little chance that both taps will remain open for long. In any case, when the policy rate is lowered or the money supply  halted, it will cause a lot of pain for households and real small and medium-sized enterprises.

Today, the opinion that the coin is dangerous has spread throughout society. Another FOMO is created to "get out" first before the coin loses all its value. There may be many more casualties, but then no one will take them seriously. Because policy "knows" when the money in people's hands will increase or decrease. The policy has an influence not only on coins, and not only on us but on all the stock markets of the world. The sensitivity of the cryptocurrency market is simply too high.