The market value of crypto assets has been hit hard this year due to a change in investor sentiment on this fickle business. If some thought it had already earned its place as a store of value, Bitcointhe leading cryptocurrency, is letting them down.
It is true that at some moments in its brief history, the digital asset has managed to withstand shocks that have affected the stock markets in a good way. However, reality has set in and cryptocurrencies are reinforcing their place as high-risk portfolio enhancers.
From an all-time high of $69,000 per unit in November, the price of Bitcoin today stands at $29,000. This is a loss of 58%, enough to hurt the long-term returns of unbalanced portfolios. In general, this happens with the entire cryptoactive market.
The capitalization of crypto asset market It fell almost 800,000 million dollars in April and also marked a minimum of 1.4 billion dollars on Tuesday, March 3, according to data from the platform CoinMarketCap. It should be noted that Bitcoin represents 40% of the market, according to that same firm.
To these collapses have recently been added the calls stablecoins or stable digital assets, which aim to give investors greater peace of mind. Tetherthe most important stablecoin, lost its parity with the dollar and contributed to sowing uncertainty among the operators.
For Esteban Polidura, director of Consulting and Products for the Americas of the Swiss bank Julius Baer, the problem lies in the way in which many participants understand these assets, especially Bitcoin, which do not share characteristics with gold and are not effective tools to protect value. .
“Crypto assets and non-fungible tokens (NFT), similar to stocks, are risky assets. They are not assets to reduce risks or counteract inflation, but they can give additional impetus to a portfolio. Those who believe that Bitcoin is digital gold have not yet been able to prove it,” he stated.
direct challenge
Precisely the idea of the supposed deflationary potential of Bitcoin and other cryptos is challenged more strongly than others by the current economic context. Enthusiasts of this market consider that its limited issue, in theory, would allow it to appreciate against the dollar and beat inflation.
The optimal level of rates to curb inflation, which is at multi-decade highs, is currently being debated around the world. But Bitcoin’s reaction is far from reflecting the gains that might be expected from a deflationary asset in periods of heightened pressure on consumer prices.
What his behavior does reiterate is that, in many ways, the drops in digital assets are much more conspicuous than those that impact stock markets. And it also reflects that in moments of high nervousness in the market the performance of the cryptocurrencies tends to correlate with that of stocks.
Although historically the correlations of digital assets and stocks are down on average, they tend to rise around risk-off events. Bitcoin has suffered more than stock markets in seven of the nine phases of risk aversion observed over the last decade,” he added.
performance enhancers
For Julius Baer, digital assets like Bitcoin could continue to face great pressure if inflation persists, because they have no intrinsic value. This causes investors to move further away than from stocks in periods of risk, especially given the promise of lower returns.
But despite this adverse context, Polidura reminds that portfolios can benefit from this market, in correct proportions. “Allocations of small percentages to Bitcoin they have had a better effect on risk-adjusted returns than larger allocations,” he explained.
