For investors in bitcoin, ethereum, and other digital assets, the spectacular collapse of cryptocurrency exchange FTX, a so-called unicorn business that was recently valued at $32 billion, is just the latest piece of bad news. However, 2022 was a terrible year for cryptocurrencies even before the FTX-Binance drama.
The price of bitcoin is currently about $16,500, down from a recent high of $20,000 a week ago. Even so, the price of $20,000 was still considerably lower than the level at which bitcoin was trading on the final day of 2021, when it was slightly north of $46,000.
They have suffered the same losses as stocks and bonds, demonstrating that there is nowhere to run in a market where fears of rate increases and a recession are at the forefront.
The price of the yellow metal is not far from the lows it experienced at the start of the Covid-19 outbreak in early 2020, despite a 6% decline in gold prices this year. In the latter half of 2020, gold and bitcoin both experienced a boom as a form of safe haven trade.
Can gold and cryptocurrencies recover then? Both precious metals and cryptocurrencies have been harmed by the US dollar’s strength. When the dollar is proving to be the king of currencies, why would you invest in gold or digital assets?
Some analysts believe that the worst is over for bitcoin and other cryptocurrencies.
Bitcoin has historically experienced large up and down fluctuations
There have been a number of previous instances of “crypto winter.” Even though the price of bitcoin has been notoriously unstable over the past few years, it has nonetheless performed better than many important stock market indices.
Take a look at the price of bitcoin since the summer of 2020. They are up by 80% or more, despite the fact that the journey has not been easy. Comparatively, the Nasdaq has only increased by around 1% from July 2020 levels.
Despite going straight up and down, bitcoin and ethereum have nonetheless made significant gains since mid-2020. Digital assets are still outperforming tech stocks over that longer time frame, according to Jeff Dorman, chief investment officer of Arca, a company that deals in cryptocurrencies.
The shares of publicly traded businesses with ties to bitcoin, like Coinbase, the crypto mining companies Hive (HVBTF) and Riot (RIOT), and the bitcoin bank Silvergate, have all taken a significant hit as a result of the cryptocurrency crash.
Overreaction in the overall cryptocurrency industry?
However, other analysts believe that punishing the entire crypto business as a result of the issues at FTX is a mistake. There are concerns about contagion following the near-collapse of FTX, one of the biggest bitcoin exchanges.
Mark Palmer, head of digital asset research at BTIG, stated in a report that while they acknowledge that the FTX saga could weigh on the crypto space in the near term, they also believe the sell-off in [Silvergate] shares…reflected significant misunderstanding of the mechanics of the company’s platform.
One venture capitalist specializing in bitcoin and crypto assets concurred that FTX’s issues would not derail the entire digital asset world.
Investors do not appear concerned about the impact of FTX on the future of bitcoin, said Alyse Killeen, founder and managing partner of venture firm Stillmark. To that purpose, her firm recently invested in bitcoin infrastructure firm Hoseki, which is also funded by Fidelity’s parent company.
The price decline of bitcoin that began even before the collapse of the FTX, according to Killeen, is evidence that cryptocurrencies are still not a reliable hedge against inflation and a strengthening dollar.
When bitcoin reaches maturity, that might possibly alter. However, acceptance of cryptocurrencies is still in its early stages. Therefore, the continued rise of the dollar is bad for bitcoin.
Bitcoin is a new technology. It is still a relatively new type of payment and value storage, she claimed.
Gold is also not yet glistening
Gold has also been negatively impacted by the powerful dollar’s strength, and it’s not yet obvious when the dollar will start to decline significantly, even if the increase in consumer prices in October was less than anticipated, according to inflation statistics. This might prompt the Fed to begin reducing the rate at which it raises rates.
Monetary policy is the primary influence in this climate, said Joe Cavatoni, the World Gold Council’s chief market strategist for North America. Once inflation settles at a steady rate, he’ll be watching to see what happens to investment demand and the price of gold.
According to Cavatoni, gold’s downturn this year is mostly due to huge institutional investors’ more tactical response to ongoing Fed rate hikes and the rising US currency.
The dollar might yet have room to grow. That might be even worse news for gold.
Bob Doll, chief investment officer at Crossmark Global Investments, declared that cash has still remained king. It’s hard to call tops and bottoms in currencies, a trader once said. “The dollar has to eventually weaken and that might get gold going again.
They are unlikely to benefit from a weakening of the dollar. Now is not the time to attempt to be a hero with gold, he added.
