The spectacular implosion of crypto exchange FTX, a so-called unicorn startup recently valued at $32 billion, is just the latest bad news for investors in Bitcoin, Ethereum and other digital assets. But 2022 has already been a terrible year for cryptocurrencies, even before the FTX-Binance soap opera came along.
Bitcoin’s price is currently hovering around $16,500 from $20,000 a week ago. Still, even $20,000 was a far cry from the price just north of $46,000, where bitcoin was trading on the last day of 2021.
Investors who expected higher interest rates and rising inflation to be good for so-called alternative assets such as cryptocurrencies and gold have turned out to have had an unceremonious awakening this year.
They have been hit in the same way as stocks and bonds, proving that there is nowhere to hide in a market dominated by fears of rate hikes and recession.
The price of gold is down about 6% this year, and the price of the yellow metal is not far from the lows it recorded at the beginning of the Covid-19 pandemic in early 2020. 2020 is trading as a safe haven of sorts.
So, can gold and cryptocurrencies bounce back? The strength of the US dollar has hit both precious metals and cryptocurrencies. Why buy gold and digital assets when the US dollar has proven to be the king of currencies?
Some experts hope the worst of bitcoin and other cryptocurrencies is over soon.
This is not the first time the so-called cryptocurrency winter has arrived. Over the past few years, Bitcoin’s price has been known to be highly volatile, but it still outperforms many major stock market indices.
Look at the price of Bitcoin since summer 2020. It’s far from a smooth ride, but it’s more than 80% higher. By comparison, the Nasdaq is only up about 1% from his July 2020 level.
“Bitcoin and Ethereum have come and gone, but they are still making a lot of money since mid-2020. , digital assets still outperform technology stocks.
The cryptocurrency crash has led to sharp declines in shares of listed companies with ties to bitcoin, including Coinbase, crypto mining firm Hive (HVBTF), Riot (RIOT), and bitcoin bank Silvergate (SI). also connected.
Some analysts believe it would be a mistake to punish the entire cryptocurrency industry for its problems with FTX. is occurring.
“While we recognize that the FTX narrative could weigh heavily on the cryptocurrency market in the near future, [Silvergate] It reflects a serious misunderstanding of how the company’s platform works,” said Mark Palmer, BTIG’s head of digital asset research, in a report.
One venture capitalist focused on bitcoin and crypto assets agreed that the FTX issue would not derail the entire digital asset world.
Alyse Killeen, founder and managing partner of venture firm Stillmark, said, “Investors don’t seem concerned about the impact FTX will have on Bitcoin’s future. To that end, her company It recently invested in Bitcoin infrastructure company Gem, which is backed by Fidelity’s parent company.
Killeen added that Bitcoin’s price decline even before the FTX meltdown shows that cryptocurrencies are not yet a true hedge against inflation or a strong dollar.
That may eventually change as Bitcoin matures. But for now, cryptocurrency adoption is still in its early stages. A strong dollar is therefore still negative for Bitcoin.
“Bitcoin is still young. It is still a new form of currency, payment and store of value,” she said.
Strong dollar strength is also a headwind for gold, with inflation showing a smaller-than-expected rise in consumer prices in October, but it remains unclear whether the dollar will depreciate significantly any time soon. not. This could cause the Fed to start slowing its pace of rate hikes.
“Monetary policy remains the dominant force in the current environment,” said Joe Cavatoni, chief market strategist for North America at the World Gold Council. I’m going to keep an eye on it
Cavatoni said gold’s weakness this year was largely due to “sustained Fed rate hikes and a more tactical response to a stronger US dollar” by large institutional investors.
The dollar may have more room to move. That could be worse news for gold.
“Cash is still king,” said Bob Dole, chief investment officer at Crossmark Global Investments. It is difficult to judge the highs and lows of
“You are unlikely to take advantage of the weaker dollar. This is not the time to try to be a hero with money,” he added.