Crypto investors who believed rising inflation and rising interest rates would benefit so-called alternative assets such as gold and cryptocurrencies have apparently been in for a rude awakening as crypto has tumbled over the past few weeks. The stunning fall of cryptocurrency exchange FTX last week has left investors with no place to hide.
Cryptocurrency investors have suffered losses similar to those invested in stocks and bonds, suggesting there is nowhere to run in a market where worries about rising rates and recession are at the fore.
Bitcoin price is currently hovering around $16,500, no thanks to the crypto’s recent crash that took the coin down from $20,000 just over a week ago. However, even at $20,000, Bitcoin’s price is a long way from a value of just over $46,000 in December 2021.
Can Gold and Crypto Bounce Back?
Precious metals and cryptocurrencies have taken a negative hit due to the strengthening of the dollar. Why invest in gold or digital assets when the dollar is proven to be the king of currencies?
Some analysts are optimistic that the worst days of Bitcoin and other cryptocurrencies may soon be behind them. There have been several previous “crypto winters”. Even though the price of Bitcoin has been extremely volatile over the past few years, it has nevertheless outperformed many stock market indices.
Take a look at the price of Bitcoin since the summer of 2020 – it’s up 80% or more despite the ups and downs. In comparison, the Nasdaq is up only about 1% from prices seen in July 2020.
Bitcoin and Ethereum went straight up and down, but still have made huge gains since mid-2020. “Over this longer time horizon, digital assets are still outperforming tech stocks,” said Jeff Dorman, CFO of Arca, an agency specializing in cryptocurrencies.
Is FTX behind the crypto crash?
Some market analysts believe that it is somewhat unfair to punish the entire crypto space as a result of FTX’s problems. However, after the collapse of FTX, there have been concerns about crypto contagion.
Mark Palmer, head of digital asset research at BTIG, said in a report: “While we acknowledge that the FTX saga could impact the crypto space in the short term, we also believe that the sell-off in [Silvergate] The stock reflects 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 troubles won’t derail the entire digital asset world.
Will gold shine once again?
Gold has also been negatively impacted by the strength of the US dollar, and it remains unclear whether the dollar will weaken any time soon, although consumer price gains in October were lower than expected, according to inflation figures. This may cause the Federal Reserve to start cutting interest rates.
“Monetary policy is the primary influence in these conditions,” said Joe Cavattoni, 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 of gold prices this year is mainly due to the tactical reaction of large institutional investors, rather than the continued interest rate hikes and the strengthening of the US dollar.
By the looks of things, the US dollar could strengthen even further, which means more bad news for the glittering asset.