by Peter Violence, Euro on Sunday
Et was just twelve months ago that JP Morgan caused a sensation around the world with a new Bitcoin price target. According to the US investment bank, the cryptocurrency will rise to almost 146,000 US dollars. A year later, Bitcoin is trading at just $36,100, almost 50 percent less than in mid-November last year. In the past week alone, the price has fallen by twelve percent. Bitcoin, meanwhile, is not alone in the crypto realm with its dramatic price drop. Ether has since the beginning of the yearnn lost 34 percent, Cardano 21 percent and Ripple 28 percent. The value of all cryptocurrencies has halved from almost three trillion US dollars to 1.5 trillion in eleven weeks.
The price slide was triggered by the fear of rising interest rates and the associated increase in bond yields, which fueled fears of risky investments. In addition, a number of states have recently announced restrictions on Bitcoin & Co. The Russian central bank announced just last week that the use and mining of cryptos in the country will be prohibited in the future.
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However, it is very obvious that crypto valuations are running parallel to the current slump in stock prices, especially technology stocks. According to data provider Bloomberg, the correlation of Bitcoin with the US technology exchange NASDAQ 100 is currently higher than ever.
This scratches two bitcoin myths. First, the hope that bitcoins can help with portfolio diversification in downturns has not materialized. Analyst Sren Hettler from LBBW attributes the fact that bitcoins are now behaving in a similar way to traditional investments to major players from traditional segments, who significantly expanded their commitments in 2021. And this group of investors behaves according to the classic pattern. In other words: “As uncertainty increases, risky assets – and these are undoubtedly cryptocurrencies – tend to be sold.”
Memories of 2018
The statement by many crypto fans that Bitcoin is the new gold is also difficult to maintain. Because the yellow precious metal, unlike Bitcoin & Co, has increased slightly in the past few weeks despite or because of the turbulence.
After the heavy losses, the buzzword “crypto winter” is already making the rounds, which, like in 2017 and 2018, can drag on for a long time. Back then, bitcoin lost 80 percent of its value before bouncing back up. And currently Bitcoin is approaching the next key price range of $29,000. If this chart-technically important mark is torn, this could lead to further selling pressure. Even then, investors don’t have to throw in the towel right away.
Because so far, all sharp price falls have been followed by longer-lasting price rallies, which have led to new highs every time, also due to the regular shortage of Bitcoin production (“halving”).
Billions for crypto sector
And unlike 2018, there is currently heavy investment in the crypto sector worldwide. Last week, Silicon Valley investor Andreessen Horowitz announced plans to raise $4.5 billion for several new crypto funds. In addition, the long-awaited approval of a crypto ETF in the USA is imminent.
And in Germany, too, two new funds, the F5 Crypto Fund and BIT Global Crypto Leaders Capital, are campaigning for investor money that should flow directly into crypto currencies and companies. For legal reasons, both products are reserved for professional and semi-professional investors. Private investors rely on the Invesco CoinShares Global Blockchain ETF.
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Image sources: r.classen / Shutterstock.com, Wit Olszewski / Shutterstock.com
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