Crypto Prices Crash

As international tensions grow and capital allocators switch to the US dollar as a “risk-off” bet during volatility, crypto prices have decreased today. The crypto markets have continually declined from the market’s top in November 2021. However, a few fleeting relief rallies gave investors additional liquidity to settle their investments. First, many high-profile businesses, like Celsius, 3AC, and Terra, saw a collapse. It forced a massive selloff of cryptocurrencies.

Additionally, all markets take place in a broader macroeconomic framework. In 2022, that macroeconomic backdrop includes rising interest rates, rising inflation, a war in Europe, and energy instability. None of these are favorable for “risk-on” assets. Due to the high cost of heating, UK citizens are currently dealing with a cost of the living issue in addition to growing inflation.

Chancellor recently decided to reduce the highest income tax rate, along with a few other reforms. Conservative allies welcomed it originally.

The markets have since reacted, though. The value of sterling relative to the US dollar has proceeded to drop sharply.

Due to the increased volatility, one might anticipate with smaller market caps, cryptocurrencies, especially larger cap cryptocurrencies that are more established, continue to be highly associated with stock markets.

BTC as A Risk-Off Asset

There is some hope that if Bitcoin’s market size increases, capital allocators could start to view Bitcoin as a more “risk-off” asset.

The renowned investor Stanley Druckenmiller has argued that the recent period of extensive quantitative easing has resulted in a bubble in asset prices and that this bubble deleveraging will be very challenging for markets to handle. Investors holding “risk-on” assets should be wary going forward, especially if they seek to save capital over the short to medium term. The fact that he doesn’t believe a black swan is necessary for this chaos to occur should be exceedingly alarming.

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