- K
- Jun 18, 2022
- 2 min read
Updated: Nov 17, 2025
Though hard to mathematically quantify, the truth is: Liquidity does drive a huge part of value. An asset is only as valuable as the next guy who wants it. Against the current backdrop of monetary tightening to fight inflation and funds becoming more cautious about investments, asset prices seem to have reacted and dramatically fallen.
Growth is of course another key driver of value - which in this case, is being eroded by rapid inflation, adding to the further discount in asset prices. The double whammy here is that the same high growth companies that sold astronomical prospects of the future to investors will face the real test over the next two years as they fight against a policy that encourages the cool down of the economy.
Is there a playbook to rectify this? Was it an error on the part of central banks [1] when quantitive easing was introduced during the aftermath of the 2008 financial crisis? Or did early adopters of bitcoin and cryptocurrency pre-empt the gradual erosion in the value of money correctly? I'm not sure.
Most of the existing "money infrastructure" we know today have been largely built around a set of 'stable' long-term economic assumptions.
For example, the capex for power grids and oil exploration have been traditionally modelled around $60 oil across ten and twenty-year exploration tenors.
The value of real estate while are largely driven by interest rates, are typically also assessed on fairly long-term rental cash flows.
Within the manufacturing space, the costs of erecting a factory are also driven by the visibility of future cash flows underpinned by revenue contracts over the long term.
Even the concept of beta in valuation quantifies risk by measuring the standard deviation of an asset price against a reliable index benchmark over a relatively long term dataset.
Most investment decisions tend to be long term because the world simply cannot absorb the sudden change in prices that would dramatically disrupt these economic models.
Assuming that the immediate future would follow a reversion to the historical long-term would be borderline laughable given the current state of world affairs.
So if we can't rely on beta and the pricing assumptions of today, perhaps the best thing to do is to probably wait it out until the world finds some sanity (and stability) amidst the current circus of events.