Market turmoil: Bybit co-founder and CEO Ben Zhou says it takes the vision and conviction to believe the promise of cryptocurrencies.
Bitcoin is down more than 50% from its November all-time high, while US tech stocks have also tumbled, with Netflix leading the way, with stock prices down more than 70%. At the same time, commodity and energy markets have gained momentum. What is happening?
The best way to understand what is happening in the crypto market is to look at the broader capital market. We are entering a risk-free environment due to rising interest rates in the US, UAE and Europe, which has increased volatility across multiple asset classes.
risk free environment
The Federal Reserve’s latest policy reversal of quantitative easing, or quantitative tightening, entails raising interest rates and shrinking its balance sheet. This change makes tech stocks like Apple and Google particularly vulnerable, as it subjectes their future earnings to higher risk.
Raising rates increases the likelihood of stagflation (zero growth) or recession, which encourages investors to reallocate capital into “defensive” positions such as precious metals, real estate and cash. This flight of capital affects the securities that trade hardest on future growth.
For the past year or two, bitcoin and the rest of crypto have been highly correlated with the NASDAQ and the S&P 500, and investors have been at a loss from turning to safe-haven assets in a riskier environment. However, this does not mean that the rule book for stocks applies to bitcoin, ether or other crypto assets.
In market turmoil, crypto is a different animal
Prior to 2020, bitcoin and stock market movements showed a weak correlation. This makes sense because bitcoin is an asset with a hard cap of 21 million units, and it is “mined” through a competitive system, as opposed to issued by a centralized entity. Furthermore, unlike larger companies, it does not have a CEO, quarterly earnings report, or management issues. As a unit, it is similar to gold with a high degree of transparency in supply and demand.
Recently, however, bitcoin and other crypto-assets have gained widespread acceptance as an asset class. Institutional investors, traders, family offices and corporations add crypto to their portfolios in an effort to diversify the future of finance, thus bridging crypto assets into equities as their investor groups increasingly overlap.
Furthermore, government regulation will continue to shape the future of the growing asset class, and although its full extent remains unknown, viewing bitcoin as a risk-averse asset makes some sense – for now.
It is my personal view that bitcoin, ether, and other crypto assets will become isolated from the broader equity markets as the general population better understands their functionality, what they offer, and how they act as unique stores of value. can. And, while we have a complete regulatory framework that covers the crypto asset class, we should see it differentiate itself from the traditional markets.
Market turmoil: a clear vision
The creation of an entirely new asset class is a historic opportunity for investors, but the road to worldwide adoption is not without its challenges. Bitcoin moves cyclically, and throughout its history, its cycles have included brave new highs and worrying lows.
We are now in the fifth bear market for crypto, according to the Bitcoin Is Dead database, and critics have been quick to declare the death of bitcoin – as they have 377 times before. There have also been two so-called bubbles that have burst in the past. On all occasions, bitcoin and its conglomerate have become stronger and more valuable than ever before.
The current downturn in the crypto market is normal, just like any market. If anything, Bitcoin has shown greater resilience in the current cycle and held the $20,000 line. Volatility is more pronounced in crypto, due to its smaller total market capitalization and its nascent status, along with educational and regulatory issues.
But as countries such as the United Arab Emirates have shown recently, sensible regulation that gives crypto builders and entrepreneurs the freedom to build a bigger and stronger crypto economy is expected to guide the industry towards a faster recovery and greater stability in the long run. will help.
The market has spoken. Recently, Silicon Valley firm Andreessen Horowitz announced the largest crypto and blockchain fund of its kind at $4.5 billion to capitalize on the recession. We will continue to build wealth for those who have the vision and conviction to stay the course.
About the Author
ben zhou Co-founder and CEO of Bybit. He led the cryptocurrency derivatives exchange in a platform with over one million users since its inception in 2018. Ben has seven years of experience in the cryptocurrency industry prior to founding Bybit, and was previously the CEO of XM.com China.
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