The fall of cryptocurrencies in five questions

Confidence appeared to be back on Friday morning: The nearly 19,400 coins in existence, according to CoinMarketCap, rose 10% to nearly $1.3 trillion.

We asked Martin Lalonde, president of Investissements Rivemont, to explain the current situation and what it means for the future. This portfolio management company not only offers traditional investment strategies, but also options such as cryptocurrencies.

How do we qualify for what we witnessed this week?

It’s a breakdown, what happened this week. This is not unusual in the cryptocurrency world. It is a highly volatile asset. It’s part of the game. If you decide to invest in it, you should be able to get past those moments that happen every once in a while.

What happened?

The truth is, we don’t know exactly yet. Simply put, there is an important stablecoin (stablecoin), TerraUSD or UST, which is supposed to follow the US dollar, i.e. 1 token for 1 US dollar. It is a project with an algorithm tied to a cryptocurrency called Luna. Each TerraUSD holder was promised a value equal to 1 USD in Luna.

There have been big sellers of TerraUSD at the same time recently and the project lost that person to one. People no longer trust the token, while the idea is to provide security. A lot of people invested in the project, but Luna lost all her value. It was worth $120 in April, and now it’s zero. We are talking about a destruction worth 40 billion US dollars.

The project was a failure. This has shaken confidence in the cryptocurrency market.

What do the next few days hold for us? Have we hit rock bottom?

If I could answer you for sure, I would be very rich. Over the course of three to ten years, I think this kind of fluctuation is normal. You can’t own an asset that makes 40,000% over 10 years without being highly volatile.

There was an interesting stability in the market on Friday. We have seen a huge recovery. Recently, cryptocurrencies have been linked to the NASDAQ Index [à forte composante technologique, NDLR]. I think the Nasdaq has lost enough. We also have to set the record straight: Not all other financial markets have been doing well in recent weeks.

“I won’t discriminate [les jetons stables] “As a real threat to financial stability, but it is growing very quickly and presenting the same kind of risks that we have seen for centuries in the operations of managing banks,” US Treasury Secretary Janet Yellen said.

Are there systemic risks in your opinion? Is this another example to prove that regulatory authorities should speed up supervision of virtual currencies?

When there is a capital loss, it can have an impact on other asset classes, because that money is not available. The fact remains, for now, that the cryptocurrency market is not large enough to be a leader compared to the bond, stock or commodity markets.

People who work in virtual currencies try to be supervised as little as possible. On the other hand, if we want the asset class to get more serious, it is inevitable that there will be additional oversight, particularly in the US. The winning position would be for the authorities to leave enough space for new projects while fighting money laundering and cybercrime.

It has been said that cryptocurrencies can be a safe haven like gold in an inflationary environment. What can we conclude from this, in the end?

It doesn’t work, but it’s the same for other means that we thought were fiscal hedges against inflation. Gold fell significantly as well. On the other hand, in the long run, I still think Bitcoin is a great safe haven and a great way to get value in your wallet, no matter where in the world.

Bitcoin has lost 80% of its value multiple times since its birth. Those who were the big winners are the ones who succeeded.

This interview has been edited for brevity and clarity.

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