30/05/2022 16:10
The recent crash in cryptocurrencies has challenged investors’ arguments towards this asset class, for multiple reasons. The first is certainly linked to diversification compared to other investments such as equity. Over the past few months we have observed a rather important correlation between the performance of the stock market and that of cryptocurrencies. And therefore the first assumption of greater diversification than the other asset classes did not occur at all from the beginning of the turbulent phase on the markets.
The second relates to the alleged nature of “digital gold” which would offer protection in the event of inflation. In particular, supporters point the finger at the huge liquidity injections of central banks in the last decade compared to the limited number of units proposed by some cryptocurrencies. Even this hypothesis has not withstood the test of a context of rising inflation.
Will the collapse of cryptocurrencies have economic repercussions?
“The correction of the financial markets this year has not spared even a controversial area like cryptocurrencies: Bitcoin, has lost one third of its value since the beginning of 2022 and about half of last year’s highs.
Other less popular cryptocurrencies have experienced even worse collapses. Coinbase, an American cryptocurrency exchange platform, has lost over the 70% of its value since the beginning of the year “he writes Matteo Ramenghi, Chief Investment Officer UBS WM Italy
The criticisms of this world have never been lacking: already in 2018 the famous investor Warren Buffett, president of Berkshire Hathaway, had suggested that “they would have had a bad end “. Last year, China banned its trading despite its commitment to blockchain, the underlying technology, Ramenghi continues.
I crypto asset “They are worth nothing, they are based on nothing, there is no underlying asset that acts as a safety anchor ”. Vitriolic words those pronounced in recent days by the president of the European Central Bank, Christine Lagarde on cryptocurrencies. The fear – Lagarde explained – is for the safety of savers “Which have no understanding of riskswho risk losing everything, that’s why I believe they should be regulated ”.
In light of the rapid devaluation of cryptocurrencies, one has to ask whether this phenomenon could have economic effects. History shows that when a bubble is formed, there are large transfers of value. Those who sold Bitcoin for $ 70,000 today have a currency that has economic value, the dollar. The buyer, on the other hand, records a significant loss at current prices.
If there are widespread losses in value, such as on the occasion of a stock market crash, there are economic repercussions both for practical reasons, because some investors may have relied on higher values to finance their lifestyle, and for a matter of trust. in the economy: if this is lacking, the propensity to save increases and consumption, a fundamental component of GDP, decreases.
But cryptocurrencies are not widely spread: all in all they are held by a limited number of people they control the market and probably have a speculative attitude that makes them less sensitive to losses. As such, we do not expect significant economic impacts from the cryptocurrency correction, concludes Matteo Ramenghi.