The near-halving of cryptocurrency values in recent weeks, which corresponded with a sell-off in global stock markets, suggests that cryptocurrencies may not be a particularly stable asset during times of economic turmoil.
Investors have been pushed to shift away from riskier assets like stocks and toward safer alternatives as a result of the Russia-Ukraine conflict and the US Federal Reserve’s decision to reduce monetary support. Cryptocurrencies, which were once thought to be a safe bet against inflation, no longer appear to be so.
Last week’s volatility in UST prices worsened the latest sell-off. USDT, the world’s largest stablecoin, too temporarily dipped below its $1 peg on May 12 to 95 cents.
Fear of inflation was the primary driver of the worldwide stock market crash. Prices in the United States are at their highest level since 1981.
The Federal Reserve has promised to tighten its monetary policies. According to the Economist Intelligence Unit, seven rate rises are expected in 2022, bringing US lending rates to 2.9% by early 2023. The Federal Reserve hiked interest rates by 50 basis points to 1% on May 4, the largest increase since 2000.
If this trend continues, equities will lose their appeal to investors. The S&P 500 index has already dropped about 10% in the last month, marking a new 2022 low. However, the drop in cryptocurrency prices has been much more severe than the drop in stock markets—bitcoin prices have dropped by 26% in the last month.
According to Kanika Agarrwal, co-founder of Upside AI, an India-based portfolio management services business, one important reason for this is that investors are increasingly approaching cryptos as another risky investment. According to her, the collapse in IT stocks has been especially reflected.
“It indicates that the crypto markets are attaining maturity—just like other markets, crypto also has a bear and bull run and at present, we are going through a bearish phase,” Nischal Shetty, co-founder of WazirX, a cryptocurrency exchange said.
DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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