Monetary policy tightening carries risk of virtual currencies
The volatility and sudden movements that characterize the cryptoactive market are resurfacing. And this time to put downward pressure on the investments of the 4.5 million Spaniards estimated to own this asset class.
Specifically, and according to a recent report by the association of financial users Asufin, 11.2% of Spaniards have invested or are currently investing in cryptocurrencies. And of them, more than a quarter have exceeded 6,000 euros in investments. The problem is, as institutions like the National Securities Market Commission (CNMV) and the Bank of Spain have been warning for some time, the rise of crypto assets has led many retailers to enter this market, encouraged by high profitability prospects, without taking into account taking into account that it is a risk asset. And of maximum volatility.
Despite the fact that the price of bitcoin or ethereum recovered on Tuesday from Monday’s crash, doubts about the evolution of cryptocurrencies in the new market environment have skyrocketed in recent months. With the 11.5% drop registered Monday, bitcoin accumulated five consecutive sessions of declines in which it has lost 24% of its value, sometimes leaving the psychological barrier of $30,000 at an all-time low. July 2021. At the beginning of the year, it was trading at $47,700.
According to data from the specialized website ‘Coinmarketcap’, the current market value of the cryptocurrency is around $604.9 billion. Far away are the $1.27 trillion that peaked in November 2021, when the price crossed $65,000 million, more than double its current value.
The experts are clear. Those investors who are betting on the ‘crypto’ market as a formula to diversify portfolios in times of stock market crashes such as those experienced recently couldn’t be more wrong. And it is that, judging by the behavior of virtual currencies, their correlation with stocks, especially with technological assets, is maximum in times of risk aversion like the current one.
Fears of skyrocketing inflation and slowing global growth swept through financial markets and the volatility experienced by crypto assets supports our view that while historical correlations between digital assets and equities have been low on average, they tend to increase in times of risk aversion”, Julius Baer analysts explain this in a recent analysis of the situation.
From the Swiss bank, they recall that digital assets have benefited from the environment of low interest rates and high liquidity that the central banks have provided to the market in recent years. But the start of a new cycle of interest rate hikes around the world heralds a change in scenario that is having a particularly noticeable effect on the assets most closely tied to technology, as they tend to be much more indebted sectors. And this is also “pushing” investors to get out of some assets, the “cryptos”, in which it has long warned of possible bubbles.
Regarding bitcoin, Javier Molina, spokesperson for the eToro platform in Spain, indicates from a technical point of view that “if prices manage to recover $35,000, we will not consider other bullish options until we see the $40,000 mark”. In other words, until that level is reached, there is a risk of new downward turbulence.
This poses a serious challenge in an economy that, according to data from the Bank of Spain, is already the fifth largest in terms of volume of cryptoactive transactions in Europe. In fact, the transaction volume last year, at nearly €60,000 million, has been 4.8% of GDP and 2.7% of total financial assets, behind only the United Kingdom, France, Germany and the Netherlands, and ahead of other major financial centers such as Switzerland and Italy.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
