- Gennaio 26, 2022
- Posted by: Oliver
- Categoria: Economics, Finance & accounting
Cryptocurrencies from Bitcoin to Ether have plunged in recent weeks, erasing over $1 trillion from their market value since the start of 2022.
The world’s largest cryptocurrency, Bitcoin, has fallen 50 percent from its November high of $69,000.
Ether, the coin of the Ethereum network and the world’s second most valuable cryptocurrency, has also taken a hit, dipping below $2,200 on Monday morning. Ether hit an all-time high of $4,891 in November.
IMF downgrades growth
The International Monetary Fund on Tuesday downgraded its global growth forecast by a half percentage point for 2022, citing downgrades to the outlook for China and the US.
The fund cut its forecast for US growth by 1.2 percentage points, citing the stalemate over the passage of President Joe Biden’s Build Back Better spending plan, the Federal Reserve’s unwinding of pandemic stimulus measures, and continuing supply shortages that are driving inflation.
Many Wall Street analysts see price pressures and ongoing worker shortages as a headwind to the world’s largest economy.
“The US economy will be hindered by persistent labour shortages and reduced policy support,” the Global Economics Team at Capital Economics wrote in a note on Tuesday morning.
“While headline inflation is very likely to fall, we expect core inflation to remain elevated across the developed world as shortages persist and wage growth picks up.”
Meanwhile…..
The global crypto industry is awaiting the outcome of the Fed’s two-day policy meeting, which will be released on Wednesday. The hawkish stance from the Fed and signals of four rate hikes in 2022 has spooked the global markets lately.
With a sharp correction in global equity markets, particularly in tech stocks, the crypto cart followed the carnage and eroded wealth worth $1 trillion from the global crypto market cap.
However, the crypto traders are showing some signs of recovery, but the volumes have remained muted as the traders are eyeing Fed’s commentary on the issue.
Clearly, the Fed intends to curb and pump out the easy money policy. The hawkish view from the US central banks hammered the crypto cart and the top coins saw a big drop in their pricing.
The stock market is likely to indicate the outlook for the crypto market. The stock market is having another rough ride, said Anndy Lian, Chairman, BigONE Exchange.
Market experts believe that the Fed will try to restrain the rising inflation without dismaying the already fragile markets further, without the complete certainty of the success of their plans.
Bill Hughes, Senior Counsel & Director of Global Regulatory Matters, ConsenSys, said: “We should expect the entire world to hold its collective breath while a room of central bankers make decisions that will have ripple effects in all world markets, which is the hallmark of a financial system that crypto believes it can improve upon.”
He specifically expects the Fed to try to walk the very difficult and uncertain line of curbing inflation while not further panicking already nervous markets, he added. “Whether they are successful or not, it’s not completely in their control.”
Michael Terpin, Founder and CEO, Transform Group, a global blockchain advisory company, said that there had been a general climate of investor fear around the eventual tightening of the unprecedented loose monetary policy of the Fed.
“The stock market should bear the brunt of this, as there are no buybacks in crypto,” he added. “Calling everything risk-on or risk-off oversimplifies the markets.”
Impact on the mood of the market
In the short term, if the Fed decides to tighten credit markets, then the tide of investment dollars into crypto might ebb to some degree, which may affect the crypto start-ups that have a harder time fundraising without ubiquitous cheap money.
But in the medium and long term, and with respect to the more attractive investment opportunities in the space, these monetary policy moves will have little to no meaningful effect.
Blockchain technology is here to stay and growing at leaps and bounds, said Hughes from ConsenSys. “This will drive the investments flowing into the space as people and institutions place bets on the industry, building the future of finance and global online culture.”
What should investors do?
The news about the executive order emerged a day after the Federal Reserve Board (FRB) released a discussion paper that explores the pros and cons of creating a central bank digital currency (CBDC) for the US, which seeks public comment through May 20.
“Looking at the timeline, I think investors have to reposition their investment strategies for crypto. This could also mean the rise of the altcoin markets,” said Lian from BigONE.
Crypto investors need to have a long-term outlook and patience, said the market experts. In the short term, crypto markets are poised to show wild volatile swings.
There has never been a period where prices were not higher for Bitcoin four years later, said Terpin. “Stock market investors generally have at least ten-year horizons, and crypto investors need to adopt the same philosophy,” he added.
Controlling and taxing income is every governments’ responsibility and prerogative, and that should have been priced into the market already, said the experts.
We could look at it as something bad — where growth and free-market are being restricted by the Fed or as crypto investing has a big impact on investing and has enough mainstream money invested that it has begun to matter to policymakers, said Pratik Gauri, CEO and Founder, 5ire.
“Both the crypto investing and associated innovation are becoming mainstream. Investing in crypto as a value proposition or a value building vehicle is not going to be affected anytime soon,” he added.