Crypto investors who believed that increased inflation and rising interest rates would be beneficial for so-called alternative assets like gold and cryptocurrencies have apparently been in for a rude awakening by the crypto crash of the past few weeks. The stunning collapse of the cryptocurrency exchange FTX in the past week has had investors facing hard times and having nowhere to hide.
Cryptocurrency investors have suffered the same losses as those invested in stocks and bonds, demonstrating that there is nowhere to run in a market where worries about rising rates and recession are at the forefront.
The price of bitcoin is currently hovering around $16,500, no thanks to the recent crypto crash that pulled down the coin from a high of $20,000 just over a week ago. However, even at $20,000, the price of Bitcoin remains a far cry from its value of just over $46,000 in December 2021.
Can Gold and crypto bounce back?
Precious metals and cryptocurrencies have taken negative hits due to the strengthening of the greenback. When the dollar is proving to be the king of currencies, why would you invest in gold or digital assets anyways?
Some analysts are optimistic that bitcoin and other cryptocurrencies’ worst days may soon be behind them. There have been a number of previous instances of “crypto winter.” Even though the price of bitcoin has been notoriously unstable over the past few years, it has nonetheless performed better than many stock market indexes.
Take a look at the price of bitcoin since the summer of 2020 -they are up by 80% or more, despite the ups and downs. Comparatively, the Nasdaq has only increased by around 1% from the prices seen in July 2020.
“Bitcoin and Ethereum went straight up and down but they have still gained a lot from mid-2020. Over that longer time horizon, digital assets are still outperforming tech stocks,” mentioned Jeff Dorman, chief funding officer at Arca, an agency specializing in cryptocurrencies.
Is FTX behind crypto crash?
Some market analysts believe that punishing the entire crypto space as a result of the issues at FTX is somewhat unfair. However, concerns have been raised about crypto contagion following the near-collapse of FTX.
Mark Palmer, head of digital asset research at BTIG, stated in a report that “while we acknowledge that the FTX saga could weigh on the crypto space in the near term, we also believe the sell-off in [Silvergate] shares reflected a significant misunderstanding of the mechanics of the company’s platform.”
One venture capitalist who focuses on bitcoin and crypto assets agreed that FTX’s problems won’t derail the entire digital assets universe.
Will Gold Glitter once more?
Gold has also been negatively impacted by the strength of the US dollar, and it’s not yet obvious if the dollar will decline anytime soon, even though the increase in consumer prices in October was less than anticipated, according to inflation statistics. This might prompt the Fed to begin slowing down interest rates.
“Monetary policy is the primary influence in this climate,” said Joe Cavatoni, the World Gold Council’s chief market strategist for North America. “Once inflation settles at a steady rate, I’ll be watching to see what happens to investment demand and the price of gold.”
Cavatoni added that the weakening gold price seen this year is primarily due to the tactical response by institutional large institutional investors rather than the persistent rate hikes and surging US dollar.
From the look of things, the US dollar could strengthen even further, meaning more bad news for the glittering asset.
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