Status: 05/18/2022 08:53 AM
The collapse of Bitcoin and other cryptocurrencies has wiped out hundreds of billions of dollars. Venture investors say: it’s time for a new entry.
Randy Zuckerberg never stopped singing about cryptocurrency. In a video released a few days ago, the sister of Facebook founder Mark Zuckerberg sang an ode to the Ethereum cryptocurrency.
But the bitter truth is that the most famous currency, Bitcoin, has lost half of its value. And other currencies combined, over $200 billion has been destroyed by price drops in the past week alone.
Young people in particular seem to have invested in cryptocurrencies. They reported the losses of the past few days on Twitter, Facebook, TikTok and YouTube. Vlogger Griffin Milks, for example, is 25 years old and lost $35,000.
Cryptocurrency is not an inflation hedge
The huge price losses are due to high interest rates in the United States, a record inflation rate of more than eight percent, and fear of a recession in the stock markets. So far, the property has been credited to Bitcoin as providing a safe haven in the event of inflation. But this is exactly what did not happen. Instead, there appears to be a link between cryptocurrencies and technology stocks. Apple, Facebook and Google have also lost their value dramatically.
“A lot of people thought it was an inflation hedge, but there’s very little data to support it. Not recently, but in the long run,” says Randy Frederick of financial advisor Charles Schwab. Frederick stresses that there is not yet a strong data basis for a long-term view of Bitcoin. Because the oldest cryptocurrency is only ten years old.
False promise of stability
TerraUSD – the so-called “stablecoin” – also hurts the reputation of cryptocurrencies. Stablecoins are usually backed by real assets such as dollars or government bonds. “Stable” should mean: stable.
Meaning: TerraUSD should correspond to 1 US dollar. In fact, TerraUSD was once backed by other cryptocurrencies – now it’s worth only 13 US cents.
The US government wants to regulate more
US politicians are worried again and plan to regulate the market closely. Coindesk crypto expert Kristin Lee repeats what many investors haven’t wanted to hear in recent years because new currencies often only know one way: up.
She warns: “It’s hurting a lot of people right now and there’s a rude awakening right now. The cryptocurrency market is like a roller coaster ride. You have to keep your seatbelt on and enjoy the ride.”
Somewhat bolder crypto experts advise that this is a good time for a new entry.