crypto train rolls on
the world of cryptocurrencies is as much a marvel as it is a mystery. sure it has fallen out of the spotlight of late, but that is perhaps more due to the fact that the world got used to its idiosyncrasies than that it stopped seeing tokens register 10,000% gains or go to zero every other week. from another perspective, it is perhaps good that it hasn’t made headlines of late because expectations were that Bitcoin and its peers might take a heavy fall after the US Federal Reserve’s hawkish turn. instead, the largest cryptocurrency actually registered gains on the day of the announcement and has continued to hold firm since.
can the optimism last?
the Federal Reserve announced that it would speed up the pace at which it was tapering stimulus and predicted as many as three interest rate hikes in 2022. this is bad news for investors in general because it signals the end of an unprecedented period of “easy” money, i.e. available to borrow at low interest rates. as the cost of borrowing money goes up, less of it enters the market through that route. this is especially applicable to investments that are considered risky, a category which cryptocurrencies definitely fall under.
the measures are also expected to precipitate a greater degree of financial prudence from firms, which again spells a move away from volatile investments such as Bitcoin.
however, the aforementioned unprecedented flow of money combined with the tremendous returns generated by several cryptocurrencies over the past year and a half have led to the creation of a new breed of investor. one with a risk appetite that far outweighs those that came before. to many of them, market fundamentals don’t matter as much as being on the right side of any given market play. consider Gamestop for example. an offline video game retailer on the verge of closing down, with the pandemic almost hammering the final nail in its coffin, saw its stock price rocket hundreds of percentage points simply because retail investors grouped together to outwit the negative positions taken by hedge funds.
the present situation with cryptocurrencies appears pretty similar. fundamentals indicate a correction on the cards which investors continue to defy. given the crypto industry’s $2 trillion size, to say they’re playing with fire could be as much an overreaction as an understatement. only time will tell.