What to do in the cryptocurrency market? Here is the scenario

Bill Gates recently said that what worries him most about cryptocurrencies is the lack of regulation. He added two risks: they are decentralized and can be very volatile. It immediately began to receive an avalanche of criticism, for one only has to criticize cryptocurrencies to start receiving criticism from all sides.

He is not the only one: the CNMV and the SEC in the United States, as well as the President of the Treasury Department, have not spared their virulent criticism of this type of asset.

But in addition to the official opinion of various bodies and institutions, it is relevant what happened recently, the sharp fall from the peaks reached a few months ago, in the case of Bitcoin and reached -60% and in the case of, and collapsed was larger and reached -88%. But LUNA, the coin, won the pompom with a drop of -99%. Meanwhile, a basket of 25 US-listed cryptocurrency-related stocks has seen about $ 200 billion in market value disappear since the world’s largest digital token reached a record high in early November. Meanwhile, Coinbase (NASDAQ :), a virtual currency exchange listed a year ago when its shares were worth as much as $ 342, fell to $ 50.

And continuing with Coinbase, there was also concern that what he said about a hypothetical bankruptcy of the company could jeopardize the deposited crypto as they could become the subject of bankruptcy proceedings and these customers are considered “unsecured general creditors”. In other words, the funds could be used as assets of the company to meet its obligations.

In the event of bankruptcy, the authorities intervene in the company in question, and in the event of a lawsuit, the use of these funds, which the customers have deposited, could be determined as part of the assets available to cover the company’s debts. This does not mean that the funds will necessarily be used for the company’s debt, but it does confirm that the risk exists.

What is the reason for this sharp decline in cryptocurrencies in general?

We can mention several reasons:

  • The beginning of a sharp bullish interest rate cycle from the US Federal Reserve to control the inflation explosion, which is reaching levels not seen in four decades.
  • In the current environment in which we find ourselves and with all the investors’ concerns (high inflation, rising interest rates, problems in the Chinese economy, fears of a global recession, supply problems, war in Ukraine), there is a clear interest in the search for safe assets. And if you take into account that cryptocurrencies are moving more and more along with technology stocks, that is one of the reasons why money is leaving this market in search of other theoretically less risky assets. .

But amid the current turmoil, the launch of Europe’s first ETFs by Grayscale, the world’s largest digital asset manager, is still under way. The ETF in question will copy the Bloomberg Grayscale Future of Finance Index and will be listed on three European stock exchanges: London, Frankfurt and Milan.

The central idea that dominates Wall Street is that a kind of bubble was generated in cryptocurrencies due to excess liquidity, where a lot of money from investors flowed into these assets because the banks barely offered a return on their customers’ money. But the current situation has changed, the excess cash party is over.

I believe, as always, that the law of supply and demand prevails. I strongly doubt that demand will disappear from one day to the next. It is normal that in the current situation with so much uncertainty around us, the demand for risky assets decreases, it is the same for the stock market and stocks.

But as soon as calm returns, which will not be in the short term, money will once again flow into the stock markets as well as into cryptocurrencies. Let’s actually remember what happened in 2020, the coronavirus pandemic popped up and plunged -50%, and then rose sharply again. Well, the same thing is happening now until calm returns to the stock markets, money will not flow into cryptocurrencies.

In the following graph, we can see Bitcoin, and how it is at a key moment, in support of the fact that every time it reached it, the price stopped falling and rose upwards.

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