Bitcoin’s Diversification Flaws Uncovered By Respected Economist
- Bitcoin has been making headlines recently for its wild fluctuations in value.
- Federal Reserve’s latest policy meeting expressed caution about the recent crisis triggered by the collapse of some prominent banks but highlighted that the American banking system was robust.
Bitcoin has been making headlines recently for its wild fluctuations in value. In the latest development, Bitcoin’s value fell by almost 5% to $26,000 following the announcement of a quarter-percentage point interest rate increase by the U.S. Federal Reserve.
This marked the ninth consecutive interest rate hike and the second quarter-point increase in a row, leading to widespread panic among cryptocurrency enthusiasts.
Economist Robin Brooks of the Institute of International Finance (IFF) tweeted that Bitcoin was demonstrating “genuine diversification attributes today – to the downside.”
Brooks joked that Bitcoin’s diversification attributes were “heads you lose, tails you lose. If you hold Bitcoin,” since the cryptocurrency fell when it was expected to rise. The comment ruffled the feathers of many cryptocurrency enthusiasts, who started attacking Brooks in the replies to his tweet. It is worth noting that Brooks had previously criticized Bitcoin on March 14, calling it “just another bubble asset” with “zero store of the value function,” “zero diversification benefit” and “zero yields.”
The Federal Reserve’s latest policy meeting expressed caution about the recent crisis triggered by the collapse of some prominent banks but highlighted that the American banking system was robust. While mostly in line with Wall Street’s expectations, the decision to continue hiking interest rates dashed crypto bulls’ hopes of a dovish U-turn amid the banking crisis.
Despite recent bouts of volatility, the price of Bitcoin had recently crossed the $28,000 mark to reach a year-to-date high. However, Brooks’ comments suggest that the recent price spike is not reflective of Bitcoin’s true value or potential. He suggests that cryptocurrency is not a reliable investment, and its volatility has once again come to the fore following the Fed’s recent rate hike decision. It is clear that the cryptocurrency market is still in its early stages, and investors need to be cautious when investing in digital currencies.
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