Cryptocurrencies | Why crash?

The new drop in the value of Bitcoin, the emblem of the cryptocurrency market, continued Thursday to fall below the $26,000 threshold, the lowest level since the end of December 2020.

Posted at 6:00 AM

Martin Valeris

Martin Valeris

That value recovered slightly to around $28,000 late in the day, as Bitcoin market participants were still trying to figure out the impact of sudden difficulties in cryptocurrencies such as stablecoinssuch as Terra USD, whose value is supposed to maintain parity with the US dollar.

Meanwhile, the value of Bitcoin has fallen by 30% in one month. It is also down 60% since its all-time high of $67,700 hit last November.

As a result of the bitcoin reversal, the entire cryptocurrency market has fallen to just $1.2 trillion, down from over $3 trillion at its peak six months ago.

To try to see more clearly, Journalism I collected the observations and comments of two Quebec cryptocurrency market analysts.

Roche, a professor of finance and cryptocurrency analyst at UQAM’s School of Management Sciences (ESG), as well as Philip Getty, a senior cryptocurrency analyst at the Rivemont Crypto Fund at Rivemont Investissements.

What conclusion can be drawn from this downturn in bitcoin and cryptocurrency?

Photo provided by ESG-UQAM

Alexander F. Roach, Professor of Finance and Crypto Analyst at ESG-UQAM

Alexander F. Roach, Professor of Finance and Crypto Analyst at ESG-UQAM

“It has long been believed that cryptocurrencies like Bitcoin will have little correlation with the volatility of the financial markets in general. Some cryptocurrency promoters have even claimed that it can be a means of hedge against inflation. However, this is not often the case, as we can see. These days with the cryptocurrency reversal more pronounced than the current correction in the stock markets As for the inflation protection, the reversal in the value attributed to cryptocurrencies has turned out to be the complete opposite of the “safe haven”, with a loss in value much worse than the effect of inflation on the value. [du pouvoir d’achat] of the US dollar. »

Photo provided by RIVEMONT

Philip Getty, Senior Crypto Analyst, Rivemont Crypto Fund at Rivemont Investissements

Philip Getty, Senior Crypto Analyst, Rivemont Crypto Fund at Rivemont Investissements (excerpt from “Bulletin Crypto”)

“It’s a disaster for the crypto markets as Bitcoin is down about 20% in May alone. The story remains the same as in recent months. The cryptocurrency market maintains a strong relationship with North American stock indices, especially the index. [de marché] Nasdaq flavored technology. Since this indicator has fallen during the year, so will Bitcoin. However, volatility is higher than ever these days. »

What lessons should those interested in Bitcoin learn?

Alexandre Roche

“This other drop in cryptocurrency reminds us that it remains a highly speculative and highly volatile market, based on opinions and perceptions of value without a real asset base spreading among the participants in this market. Also, the cryptocurrency market remains subject to very little oversight by the regulatory authorities of the markets. Therefore, for those with cryptocurrency investments in their portfolio, a depreciation cycle like what we are seeing these days should be a good time to re-evaluate the suitability of these high-risk investments in a portfolio.”

Philip Jett

“If any of this setback could lead to [un sentiment de] Panic, those who have been in the cryptocurrency world long enough know that these are the times when maximum opportunities are found. Do we need to remind you that this isn’t the first time Bitcoin has suffered such a setback and that each time, it has been better to head to new heights? This asset class [les cryptomonnaies] It was the best performer of the last decade despite these many setbacks. It is the long-term vision that has enabled investors in this emerging market to achieve unparalleled returns. »

What are the implications for financial regulators?

Alexandre Roche

“Investors and fund managers have access to cryptocurrencies and crypto-related investment products. On the other hand, the more people or funds invest in cryptocurrencies, the higher the level of systemic risk of cryptocurrencies in the financial markets and the economy. Thus, this is another cycle. From the fall of cryptocurrencies, financial market authorities should alert the importance of better regulation of cryptocurrencies in order to mitigate the potential for future systemic risks to the economy.”

Philip Jett

Whatever the outcome of this crisis, it will mark a key moment in the efforts to regulate cryptocurrency by the authorities. [financières]. In fact, US Treasury Secretary Janet Yellen said at a public hearing [mardi] That while digital assets can “enhance innovation,” they can also “pose risks to the financial system.” Mme Yellen also noted that cryptocurrencies like Terra UST [appelées stablecoins parce que liées au dollar US] It will be organized by the end of the year. »

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