This article was written exclusively for Investing.com
- The price action of the and the reduces the speculative noise
- Cryptocurrencies have not embraced inflation
- Are they warning us of a recession or stagflation?
- 3 reasons why they should go back up considerably
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There is a lot going on in the markets that is confusing and worrying traders, investors and other market participants. Stocks have trended lower, while the bond market has plunged to almost eight-year lows. Risk has risen to levels not seen since early 2020, when the global pandemic gripped markets. However, May 2022 has nothing to do with March 2020, when the world was facing a virus, a common enemy.
The war raging in Ukraine has only aggravated the economic problems facing the world. Many market participants hunker down and dump risky assets, speculating on cryptocurrencies is the last thing on their minds. The speculative frenzy in the crypto space fizzled out after the all-time highs recorded on Nov. 10. At the end of January, Bitcoin, Ethereum and many other cryptocurrencies fell to lows. They continue to consolidate much closer to the lows than the late-2021 highs.
The market is turning its attention to war, inflation, the possibility of a recession, supply chain problems, China’s lockdown measures, tensions between nuclear powers and many other issues, so this could be the perfect time to consider adding crypto exposure to portfolios. For those looking for a substitute for tokens, the Bitwise Crypto Industry Innovators ETF (NYSE:BITQ) is a liquid product that follows prices up and down. The BITQ ETF is a very laborious selection strategy for this asset class.
Bitcoin and Ethereum Price Action Reduces Speculative Heat
On the upside, a speculative frenzy gripped the cryptocurrency markets as Bitcoin and Ethereum were the emblems for creating incredible wealth.
On the upside, Bitcoin was very attractive to buyers, as accounts of those turning a $100 investment in 2010 into millions fueled a speculative outburst.
Ethereum, the second-ranked cryptocurrency in the market, experienced the same buying frenzy when the price was on the rise.
On the downside, the attraction evaporated as price action caused losses and curbed buying.
Cryptocurrencies have not embraced inflation
Some market participants and cryptocurrency supporters had hoped that rising inflation, which erodes the purchasing power of fiat currency, would support cryptocurrencies. The theory is that governments, central banks and monetary authorities can increase the money supply at will. The only way to increase the supply of cryptocurrencies is through mining.
Theory has not turned into practice, as the highest levels of inflation in the last more than four decades have not supported cryptocurrency values. US CPI and PPI data have done nothing to support Bitcoin, Ethereum and most other 19,470+ cryptocurrencies. Additionally, rising interest rates have pushed the dollar index to its highest level since 2002 against other fiat currencies. Inflationary pressures causing the US dollar’s yield to rise have weighed on cryptocurrency values.
Are they warning us of a recession or stagflation?
As inflation soars in the US and around the world, US GDP is down 1.4% in the first quarter of 2022. China’s COVID-19 lockdown weighs on the world’s second-largest economy . A recession implies two quarters of falling GDP, and the economy faces the same problems in the second quarter. A recession with continued inflationary pressure results in stagflation, posing a challenge to the Federal Reserve and other central banks around the world that use monetary policy to achieve maximum employment and economic stability.
In addition, the war in Ukraine and the tensions between China/Russia and the United States/Europe have caused supply problems, distorting the supply of raw materials and business activity. Monetary policy can be very effective when it comes to macroeconomic problems on the demand side, but central banks have few tools to deal with the supply side.
The fall in cryptocurrencies, which have posted lowest highs and lows since November 2021, is a warning that economic conditions are deteriorating, and central banks and governments have stood petrified like a deer when they take the long line. economic and geopolitical.
3 reasons why they should go back up considerably
During bull and bear markets, prices tend to rise and fall to illogical, irrational, and unreasonable levels. In 2020, the NYMEX dipped below zero as demand evaporated. Two years later, the price was above $110 a barrel.
The volatility of cryptocurrencies only exacerbates the variation in prices. I think there are three factors that will eventually lead them to bottom out and recover:
Ideologically, cryptocurrencies embrace debauchery that rejects government control. As the faith and credit of governments dwindle, cryptocurrencies are likely to play a larger role in the global economy.
The current aggressive monetary policy path is leaving room for the next crisis, which will lead to another round of liquidity and stimulus, further weighing on fiat currency values. The war in Europe, the tensions in the geopolitical landscape and all the fallout from the supply side economic problems are not favorable for alternative exchanges that have already taken steps to become more mainstream assets.
Cryptocurrencies reflect the evolution of the financial technology revolution o fintech, improving the speed, efficiency and recording of financial transactions. The widespread acceptance of blockchain technology includes cryptocurrencies, which are the chicken or the egg of the fintech.
When crypto bottoms and rises, a buying stampede will ensue as the speculative frenzy returns to the asset class.
The BITQ ETF is a soup of Bitcoin
Asset classes are experiencing cycles, and cryptocurrencies are stuck in a bearish period. It is virtually impossible to predict the highs or lows of any asset class, and cryptocurrencies present a unique challenge due to their high price fluctuation.
Many market participants have not immersed themselves in cryptocurrencies because the computer wallets that host them are uniquely different from traditional investment custody platforms. Exchanges that hold cryptocurrencies face other challenges. Last week, Coinbase (NASDAQ:) warned that bankruptcy could wipe out user funds, or crypto held for customers, as they would become “general unsecured creditors.” In the event of bankruptcy, they would not have the right to claim any specific property of the exchange subject to proceedings, and their funds (or cryptocurrencies) would be inaccessible. There is no FDIC insurance for crypto exchange deposits to protect customers. The warning further weighed on the value of cryptocurrencies by adding a new level of risk to the asset class.
Meanwhile, the burgeoning asset class is facing many hurdles, with exchange crashes being another one. Coinbase and other exchanges will have to iron out these issues in the coming weeks and months. Future viability depends on a successful resolution, which provides confidence to customers. I believe that cryptocurrencies and the leading exchange will survive and thrive when the cryptocurrency cycle turns from bearish to bullish.
The Bitwise Crypto Industry Innovators ETF is a pick strategy for this asset class, as it features shares of exchanges, mining companies, and other cryptocurrency-related companies. Its participants include:
At the level of $8.31 per share on May 17, BITQ’s assets under management stood at $59.443 million and it trades an average of 141,014 shares each day. BITQ charges a management fee of 0.85%.
BITQ is a volatile ETF product that rises and falls based on the crypto asset class.
BITQ posted highs of $35.68 per share in November 2021, when Bitcoin and Ethereum hit all-time highs. At the $8.31 level on May 17, I think the ETF is a good cheap call in the no expiration date crypto asset class. BITQ can go to zero, but it can also skyrocket if cryptocurrencies bottom out and the cyclical trend turns bullish.
Invest only the capital you are willing to lose in any cryptocurrency related asset. The risk is always a function of the possible rewards. At the $8.31 per share level, the risk of BITQ justifies the potential of the reward.
In May 2022, cryptocurrencies have become a forgotten asset class, but that will likely change when they bottom out and a speculative profit stampede ensues.
Today’s market makes it harder than ever to make the right decisions. Think about the obstacles:
Interest rate hikes
To deal with them, you need good data, powerful tools to classify the data, and a good view of what it all means. You have to remove sentiments from investing and focus on the fundamentals.
For this, there is InvestingPro+, with all the data and professional tools necessary to make better investment decisions.