Crypto Could Be ‘Banned’ – Billionaire Investor Issues Stark Crypto Prediction As Price Of Bitcoin, Ethereum, BNB, XRP, Solana, Cardano, Luna And Dogecoin Rebound
After a roller-coaster start in July, crypto offers another glimmer of hope.
The price of bitcoin jumped 11.3%, while the price of ethereum skyrocketed by an astounding 45.1% in the past week. Meanwhile, XRP
Is this setback a prelude to the next big rally or just a “dead cat bounce”?
Last week, Forbes picked the brain of Thomas Peterffy, the billionaire founder of Interactive Brokers, about where the market is headed. When asked about crypto, Peterffy expressed serious concerns over regulation and inflation, which could crush digital assets.
– I think the chances are high for that [crypto] will become worthless or banned,” Peterffy said Forbes. But while the billionaire views digital assets with caution, he’s not writing them off as an asset class just yet.
LONDON, ENGLAND – DECEMBER 07: A visual representation of the digital cryptocurrency, Bitcoin … [+]
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Regulation is one of the biggest headwinds that could blow crypto this year.
Last month, the Senate introduced bipartisanship Act on responsible financial innovation. As the most landmark crypto bill to date, it aims to classify cryptos into securities and commodities and regulate them as traditional assets. It also wants to eradicate stablecoins that are not backed by dollars or government bonds.
Abroad, the EU reached an agreement on a set of crypto rules called Markets in Crypto-Assets (MiCA). Just like US watchdogs, the EU plans to eradicate all unsupported stablecoins.
As I wrote in my previous blog: “The EU seeks to ban all stablecoins that are not backed by a liquid reserve in a 1-to-1 ratio and do not have a presence in the EU. The holders of compatible stablecoins will also have the right to redeem their tokens for free at any time.”
In a separate preliminary agreement, the European Parliament also agreed to impose the same reporting standard on crypto that traditional assets are subject to – all to ensure that crypto transactions are traceable “from the first euro sent”.
Regulation isn’t the only wrench that can be thrown into crypto’s wheels. Peterffy believes the global economy will face persistent inflation in the long term. As Forbes’ John Hyatt reported:
“According to Peterffy, who is worth $18.1 billion, there are several reasons why inflation is here to stay: decades of chronic US deficit spending; ongoing disruptions in supply chains as globalization “reverses”; shortage of skilled workers and increasing automation; companies’ self-imposed ESG (environmental, social and governance) requirements that “increase production costs”; and, paradoxically, rising interest rates, the very mechanism for curbing inflation.”
As a supposed hedge against fiat deterioration, crypto should thrive in such an environment. But so far it has functioned more like a high-beta asset class that is increasingly correlated with inflation-sensitive technology stocks.
As I wrote last month: “Major cryptos are highly correlated to the stock market. They also have a high beta to stocks. That means crypto actually amplifies stock movements. If stocks rise, cryptos rise higher. And vice versa. If stocks fall, crypto goes in free fall Not only that, both the correlation and the beta have increased significantly since the beginning of the pandemic [according to the IMF]
If inflation persists as Peterffy predicts and crypto doesn’t “decorrelate” from tech stocks, digital assets are likely to see more red in the second half of this year.
Looking ahead – “Playing the odds”
So when will crypto bottom out? Should you buy into this asset class, and if so, how much?
Peterffy expects the worst is still ahead. He believes risk assets will see further downside, with the S&P 500 potentially falling to as low as $3,000. The billionaire still admits to having bitcoin, and will buy more if it falls to $12,000.
As for how much, Peterffy advised earlier this year to allocate at least 2-3% of your wealth in crypto in case fiat currencies “go to hell.” As he reasoned, “There’s a small chance this will be a dominant currency, so you have to play the odds.”
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