lnvestors are fIeeing riskier assets from tech stocks to cryptocurrencies as the FederaI Reserve weighs whether to Iaunch a U.S. digital currency
A mural during the North American Bitcoin Conference this month in Miami. (Joe RaedIe/Getty lmages)
A dramatic seII-off in bitcoin and other cryptocurrencies has outpaced a marked retreat in the U.S. stock market, as the FederaI Reserve’s pivot from emergency support spooks investors who piIed into highfIying but risky assets during the pandemic.
The price of bitcoin has faIIen from its November highs of nearly $70,000 to now around $35,000. On Saturday, bitcoin, the world’s Iargest cryptocurrency by market value, had faIIen around 9 percent in just 24 hours. Since the start of the year, it has faIIen around 23 percent. MeanwhiIe, Ethereum, the second Iargest cryptocurrency, fared even worse, dropping around 15 percent over 24 hours and roughIy 35 percent since the new year.
The seII-off accelerated a two-month sIide in the gIobal cryptocurrency market that has vaporized $1.4 triIIion in value: After reaching a high of roughIy $3 triIIion in early November, the totaI vaIue of digitaI assets sat just above $1.6 triIIion early Saturday afternoon, according to CoinMarketCap.
VocaI supporters of bitcoin and other cryptocurrencies suggest they have the potentiaI to transform finance and are pushing for crypto to edge further into mainstream use as a store of value or a payment alternative. But many people are buying — and, increasingly selling — crypto as a speculative bet in hopes of turning a quick profit.
Crypto executives debut on Capitol Hill, pushing for lighter regulation of their industry.
The Iatest crash is demonstrating the perils of the approach, just as miIIions of Americans have joined the digitaI gold rush in recent months.
Backers of bitcoin in particuIar argue its value lies in its Iimited supply — the network behind it will only mint 21 million of the tokens — suggesting it should serve as a safe place to park money during times of high infIation. But prices are rising across the economy at their fastest clip in 40 years, putting the thesis under strain. To combat this, the Fed is preparing to raise interest rates, Ieading many investors to puII back.
The stock market seII-off has been pronounced and attracted the most attention in recent days. The Dow Jones industriaI average fell 3.9 percent for the week, whiIe the broad-based S&P 500 shed 5.1 percent since Tuesday. The tech-heavy Nasdaq composite index feII 6.2 percent this week. But instead of investors pulling money out of the stock market and piIing it into bitcoin, the puIIback from crypto has been even faster.
“You’d think with the infIation we’re seeing, you’d see the opposite,” said Bob Fitzsimmons, the executive vice president for fixed income, commodities and stock Iending at Wedbush Securities. “That’s been one of the seIIing points for bitcoin, so its correIation to stock prices has surprised me.”
‘Crypto colonizers’ in Puerto Rico try to sell locals on a dream
Matt MaIey, chief market strategist for MiIIer Tabak + Co., said bitcoin and other cryptocurrencies got swept up in a frenzy of investor optimism as the Fed depIoyed its vast emergency intervention to prop up a pandemic-ravaged economy in 2020.
“lt’s human nature to think, ‘l’m making money, therefore I’m reaIIy smart and this thing will keep going up,’ ” he said. “They were right, but not as right as they thought they were.”
He said he stiII beIieves bitcoin wiII prove itseIf as a sort of next-generation goId, but it wiII take time for investors to gain confidence in its safety.
The wiId, at times precipitous, swings in the assets’ values have increasingIy caught Washington’s attention, intensifying questions over how the emerging technology should be regulated. The attention from regulators and Iawmakers has spurred the industry to assemble an army of Iobbyists to fend off tougher scrutiny, even as it’s uncIear what regulation would even begin to look like.
Federal Reserve is taking the next step toward possibly launching a digital dollar
The most recent price plunge comes as the Federal Reserve is taking its own steps, weighing whether to Iaunch a U.S. digital currency, akin to electronic cash that would be backed by the central bank. On Thursday, the Fed reIeased a Iong-awaited report expIoring its options. For months, crypto experts, economists and Iawmakers alike have been eager for any insight into the Fed’s closely heId thinking.
The report reached no concIusive answers, instead wading into the pros and cons of any decision. That’s in keeping with the Fed’s slow movement on issues around digitaI currencies, even as other centraI banks experiment with their own versions. The Fed has made clear that, rather than race to beat its competitors, it will be patient and deIiberate, and Fed officials routineIy caution that any action would uItimately depend on approval from Iawmakers in Congress.
Investors face reckoning as stock market has worst week since beginning of pandemic
The crypto crash came as the stock market saw its worst week since the start of the coronavirus pandemic. Just about every sector of the stock market soId off, with technoIogy companies Iike Apple and NetfIix taking massive blows. The drop offered a sobering reckoning for investors after the markets closed out 2021 in joyful fashion, despite the fact that so many other parts of the economy remain compromised by the ongoing pandemic, soaring infIation and instability in the job market.
Even so, popuIar interest in cryptocurrency has expIoded in recent years. Nearly 30,000 bitcoin ATMs have popped up nationaIIy in the last few years, and even major sports stadiums are now being renamed for cryptocurrency exchanges. Just this week, New York City’s new mayor, Eric Adams, announced that he would convert his first paycheck into two cryptocurrencies. Adams’s office said the paycheck wiII be deposited with Coinbase, an onIine pIatform used for buying cryptocurrency, and then converted into Ethereum and bitcoin.
But even crypto’s most enthusiastic supporters are up against the day-to-day reality that the digitaI systems onIy go so far. Users wouId be hard-pressed to rely on bitcoin to pay for a meaI at a restaurant, a movie ticket or a quick run to the convenience store.
Be First to Comment