Sure, crypto crashes, but everything’s fine
Jamie Burke, CEO of the cryptocurrency venture fund Outlier Ventures, says that crypto has behaved just like a stock, and that the two are moving in a locked step because the lines between them are blurred. The staggering price heights and fever hype surrounding crypto have sucked in a lot of new money as institutional and private investors spend their stimulus money on the Robinhood stock trading platform. “Digital assets began to become associated with the broader macro environment,” says Burke. “There’s a whole lot of money that came into the financial system: they started using it to speculate, and so crypto definitely take advantage of it. But in the same way, when the broader macro environment changes, you see it negatively reflected in digital assets. “
“I also think crypto can enjoy more extreme highs on good news and extreme lows on bad news. So for example – if peace was declared by Russia, I think crypto would pump. Why? It really makes no sense, but it would enough, he says.
Another way of looking at it is that crypto was never a hedge against inflation – or against anything, for that matter. Instead, it always had to be just part of the broader financial ecosystem. Sam Doctor, Chief Strategy Officer at the consulting company BitOoda, says that crypto is now used as one of many possible “risk-on” assets. People who are looking for a place to park their capital, and who may have already put money into the shares of high-risk technology companies, will naturally go up to bitcoin, and then to more obscure cryptocurrencies. “With interest rates close to zero, the market essentially said, ‘let’s go ahead and take some risk, that’s fine,'” the doctor said. Now that prices are rising and inflation is biting, crypto is the first thing that is removed from a portfolio, he claims. “This is the only time now that we actually look at bitcoin and ask if it really is an inflation hedge. And the answer that the markets tell us is: no.”
But one can only blame so much on general macroeconomic conditions and stock market upheavals to influence the downward trend in cryptocurrencies. Some of the pain is undoubtedly self-inflicted. Look at the meltdown of terra luna, an “algorithmic stablecoin” project whose value was also allegedly linked to the dollar, which lost nearly 99 percent of its value in May and pulverized $ 42 billion of investor money in the process, according to forensic investigations. the company Elliptic. Terra’s dollar parity depended on financial incentives and code, as opposed to hard cash. This mechanism, economists had pointed out, could not work, with the exception of a continuously increasing demand for the asset. As people began to withdraw money in droves, the currency crumbled. (Terra’s creator, Do Kwon, did not respond to further requests for an interview.) Celsius, who had a significant investment in Terra, is now working on liquidity issues, and this weekend they suspended all withdrawals. (Celsius executives did not respond to emails, text messages or voicemails.) In other words, over the past few years, as a market flooded with cash, new places to pour money into, schemes that have weak economic fundamentals attracted capital – until the tide turned.
