Jamie Burke, CEO of the cryptocurrency venture fund Outlier Ventures, says the crypto has behaved exactly like a stock and that the two are moving in locking steps because the lines between them have been blurred. The staggering price increases and the feverish hype surrounding crypto have sucked in a lot of new money from institutional and retail investors using their stimulus money on the stock trading platform Robinhood. “Digital assets began to be linked to the broader macro environment,” says Burke. “There’s a whole lot of money that came into the financial system: They started using it to speculate, and so crypto certainly benefited from it. But in the same way, when the broader macro environment changes, you see it negatively. reflected in digital assets. “
“I also believe that crypto can enjoy more extreme highs on good news and extreme lows on bad news. So for example – if peace was declared by Russia, I think crypto would pump. Why? It doesn’t really make sense, but it probably would, ”he says.
Another way of looking at it is that crypto was never a hedge against inflation – or against anything, for that matter. Instead, it always had to become just another part of the broader financial ecosystem. Sam Doctor, Chief Strategy Officer at the consulting firm BitOoda, says that crypto is now used as one of many possible “risk-on” assets. People looking for a place to park their capital, and who may have already put money into the stock of high-risk technology companies, would naturally move up the ladder to bitcoin and then to more obscure cryptocurrencies. “With interest rates close to zero, the market essentially said, ‘let’s go ahead and take some risks, that’s fine,'” Doctor says. Now that prices are rising and inflation is biting, crypto is the first thing disappearing from a portfolio, he claims. “It’s the only time now that we’re actually looking at bitcoin and asking if it really is an inflation hedge. And the answer that the markets are telling us is: no.
But one can only put so much blame on general macroeconomic conditions and stock market upheavals to influence the downward trend of cryptocurrencies. Some of the pain is no doubt self-inflicted. Look at melting of terra lunaan “algorithmic stablecoin” project whose value was also allegedly linked to the dollar, which lost nearly 99 percent of its value in May and pulverized $ 42 billion of investor money in the process, according to cryptocurrency forensic company Elliptic. Terra’s dollar parity depended on financial incentives and code as opposed to hard cash. This mechanism, economists had pointed out, could not work, except for a constantly increasing demand for the asset. As people began to pay out in droves, the currency crumbled. (Terra’s creator, Do Kwon, did not respond to further requests for an interview.) Celsius, which had a significant investment in Terra, is now dealing with liquidity issues, and over the weekend it suspended all withdrawals. (Celsius executives did not respond to emails, text messages, or voicemails.) In other words, in the last few years, when a market flooded with cash was looking for new places to pour money, schemes , which has a weak economic fundamentals attracted capital – until the tide turned.