These are not just frivolous forecasts or self-serving estimates of crypto investors who want to raise Bitcoin, which has been falling steadily so far this year. The latest confirmation of the possible positive evolution of the asset comes directly from the CEO of Seba Bank, a Swiss organization dealing with digital assets, who in recent days spoke about the price path for cryptocurrency at the Crypto Finance conference held in St. Moritz, Switzerland.
Guido Buhler believes that their internal valuation model shows that the price will rise this year to a range between 50,000 and 75,000 US dollars. This means (according to Coinmarketrate.com), breaking the record highs of last year, although he admits that the volatility of the asset will remain very high.
According to their estimates, it will be institutional money that will raise the cost again. All this will happen under the patina of enhanced regulation, which is already being prepared on both sides of the Atlantic. Although surveys, for example, conducted by Nickel Digital Asset Management, believe that this fact, the regulation of Bitcoin and other cryptocurrencies, will increase their price.
At the moment, the price of Bitcoin has decreased by 2.38% over the past five trading sessions, and the drop for the month exceeded 11.3%. Over the past six months, the balance is favorable: growth was almost 36%, while this year BTC fell by 8.6%.
The fear and greed index which marks evolution, is the indicator that moves more by heart, emotional behavior (although many will say that it is the liver that drives it) than anything else in the world of cryptocurrencies, has not yet raised its head this year. And it is as volatile as the idiosyncrasy itself, at least so far, which has made virtual currencies so popular: it goes from one extreme to the other, clearly indicating which way the scales are leaning, without a middle. In fact, the indicator is trying to indicate the path, and not to signal a direct purchase or sale.
At the moment, his current situation marks extreme fear, in the hottest area of the indicator, clearly to his left, but not to the end. But this feeling, which, for example, keeps Bitcoin from profit as it moves in the red so far, is becoming a general trend in 2022. Rather, it is an area that he has not left once in the last week, and in which, by the way, he was very lateral.
And it is this feeling of some fatigue that distinguishes Bitcoin at the beginning of the year. At the moment, volatility continues to set the tone, which, as we can see on the chart, has never been alien to the main cryptocurrency of the market. And it doesn’t look like inflation is combined with 7% in the United States, with Bitcoin’s view as an active haven. At the moment, it seems that bonds are winning the game, including due to the increase in rates in this country, which the market is already discounting in March.
And all this despite the fact that Goldman Sachs believes that gold is gaining momentum, and predicts that in five years it will reach $100,000 as a safe asset.
According to premium indicators compiled by Investment Strategies, the total score of Bitcoin in rebound mode reaches 3.5 points out of 10 possible for the cryptocurrency. The medium-term trend is bearish, and the long-term trend is bullish for the asset. The overall dynamics, both slow and fast, is negative for the military-technical complex.
Turnover, both in the medium and long term, is decreasing, and the amplitude range, volatility, is ambiguous: it decreases in the long term and increases in the medium term for the military-technical complex. But in general, the military-technical cooperation is waiting for new ups, which the IMF is not very happy about.
But the IMF has its own opinion on all this
According to the IMF, cryptocurrencies have crossed the acceptable threshold, and their size and relationship with financial markets have reached such an extent that their fluctuations can already have a more than noticeable impact on other assets, or even cause a domino effect.
Bitcoin and Ethereum have become strongly correlated with stock markets, creating new risks for markets and financial stability, the International Monetary Fund warns. Now they pose a real danger, especially in connection with the pandemic.
The growth of crypto assets in recent years has been one of the most striking trends in the markets. Few people could argue in 2009 (when the MTC was born) that this market would reach a capitalization that is more than twice the GDP of a country like, say, Spain.
The capitalization of cryptocurrencies reached $3 trillion in November 2021, compared to $620 billion in 2017. To a large extent, this growth is due to the arrival and growing interest of both retail and institutional investors, who do not seem to be afraid of the high volatility of these assets.
For years, central banks and other institutions have denied that this market can generate risks for stock markets or bonds, due to its weak connectivity and smaller size. Now the IMF finally recognizes that cryptocurrencies can have a domino effect on the markets: their falls and rises can spread to stocks, causing greater volatility and even destabilizing the financial system.
Cryptocurrencies correlate with stock markets (these are risky assets).
The dominance of cryptocurrencies
Cryptocurrencies have been one of the leaders of this vibrant market, spurred on by a huge amount of incentives launched by central banks and governments. While global stock markets were recovering from Covid, and Wall Street was moving from one record high to another, cryptocurrencies soared to sky-high heights. Stocks and cryptocurrencies have been clearly correlated with each other since the COVID-19 pandemic broke out in Western countries in 2020.
Tobias Adrian, Tara Iyer and Mahvash S. Qureshi-Desde, economists at the International Monetary Fund, note that the correlation of cryptocurrencies with other traditional assets, such as stocks, has increased significantly, which limits their use as a “diversifier”.
” Bitcoin and Ethereum were weakly correlated with major stock indexes before the pandemic. It was believed that they help diversify risks and act as a hedge against fluctuations in other asset classes,” experts explain. It was often possible to read and hear how analysts compare Bitcoin with gold, for its ability to diversify the portfolio and act as a hedge against inflation or correction in other markets dominated by risky assets. The data that could confirm this hypothesis evaporated with the last crisis.
Crypto assets have moved to the sound of central bank incentives and fiscal policies that have flooded the markets with liquidity. If we talk about the Cue Ball, then since the pandemic broke out and central banks took all measures, the main cryptocurrency is on a roller coaster, showing sharp growth.
It’s worth remembering that in mid-March 2020, when Covid first wreaked havoc in the West, the cryptocurrency was hanging around $5,000. From here, a stratospheric rally began, as a result of which, in April 2021, the cryptocurrency reached $ 64,300 – the historical maximum reached the day before Coinbase’s release on NASDAQ. The boom in retail investment had a lot to do with it.
The response to Covid “unites” PTS and shares
The IMF acknowledges that the beginning of this correlation between stocks and cryptocurrencies originates in the “extraordinary reaction to the crisis of central banks, in the early 2020s.” The prices of cryptocurrencies and US stocks rose amid the expansion of global financial conditions and increased risk appetite among investors.”
Bitcoin’s profitability did not have a definite direction compared to the S&P 500 in the period 2017-2019. The correlation coefficient of their daily movements for 60 days was only 0.01, but in 2020-2021 this indicator rose to 0.36, marking the beginning of a new trend in which stocks and cryptocurrencies move in unison. Bitcoin reached a record high of $68,925 on November 10, and American indices also reached record values around the same time.
“Such a strong correlation suggests that the BTC acts as a risky asset. Its correlation with stocks is higher than the correlation of stocks themselves with other assets, such as investment-grade bonds and major currencies,” the IMF economists say.
Possible domino effect
This poses a significant risk to investors and markets, as the fall of large cryptocurrencies such as Bitcoin or Ethereum can cause a domino effect. “A higher correlation between cryptocurrencies and stocks increases the likelihood of infection of investor sentiment between these asset classes. Indeed, our analysis studying price and volatility flows between cryptocurrencies and global stock markets suggests that flows from Bitcoin’s profitability and volatility to stock markets, and vice versa, increased significantly in 2020-2021.”
Currently, according to IMF calculations, the strong volatility of BTC explains about a sixth of the volatility of the S&P 500 during the pandemic, and about a tenth of the change in profitability.
“Thus, a sharp drop in Bitcoin prices may increase risk aversion by investors, and cause a drop in equity markets, suggesting that sentiment in one market is noticeably transferred to another,” warns the report of the International Monetary Fund.
We saw another close and vivid example last week, when the Fed’s clear commitment to a faster-than-expected tightening of monetary policy stirred up risky assets, including BTC and ETH.
The IMF’s findings show that this inter-asset transmission is most intense during turbulent market periods: “The flow between cryptocurrency and stock markets tends to intensify during periods of financial market volatility, such as during housing shocks in March 2020 or during sharp fluctuations in BTC prices, as was observed in early 2021.”
All of the above indicates that there is a growing relationship between the two asset classes, which allows for the transmission of shocks that can destabilize financial markets. Our analysis shows that crypto assets are no longer on the fringes of the financial system. Given their volatility and relatively high cost, their increased correlation may soon pose risks to financial stability, especially in countries with widespread cryptocurrencies, IMF experts warn.
Both stable currencies (stablecoin) and some investment instruments (Bitcoin ETFs) have significant positions in fixed income market assets (bonds, promissory notes, etc.), which, in the event of a correction in the cryptocurrency market, can be used as a way to compensate for losses by selling these assets, which may cause some selling pressure on these bonds and assets.
Therefore, the International Monetary Fund makes a global appeal to all regulatory bodies to adopt a comprehensive and coordinated global regulatory framework to launch the framework and supervisory parameters and reduce the growing risks that these assets pose to financial stability.