13 May 2022
Posted in Thematic Research
Cryptocurrency volatility shows no signs of abating and will continue to track trends seen in traditional markets, says GlobalData
Following the recent news of continued cryptocurrency volatility following the collapse of stablecoin TerraUSD;
Dr Lil Read, Senior Analyst in the Thematic Intelligence Team at GlobalData, a leading data and analytics company, comments:
“Many crypto investors view the fact that they are not linked to the value of traditional assets, such as gold, shares in a company, or fiat currencies, as intrinsic to the cryptocurrency attraction and value proposition. Some crypto bulls even looked to cryptocurrencies as an asset to hedge against inflation, but that clearly isn’t working – the reality is that the past few weeks at least have seen cryptocurrencies tracking broader market trends.
“Two main factors are at play: one is that the US Federal Reserve and other central banks are raising interest rates and removing liquidity and therefore removing key props to valuations across all asset classes – including crypto. The second is that in a rising interest rate environment, investors generally become more risk-averse. The very lack of a tangible value anchor for cryptocurrencies can, at times such as now, make them appear extremely high risk – contrary to the original concept that attracted many original investors.
“Ultimately, pricing dynamics in crypto will likely reflect the broader market trends until we see a new level of stability – which may take some months or even years. It’s likely that crypto’s volatility will not abate, and will track the overall decline we see in traditional markets. Coupled with Terra’s (the third largest stablecoin) unpegging from the dollar on Monday, crypto fanatics should be seeing red, even when they take off their rose-tinted glasses.”