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Cryptocurrency collapse and gold sale.. Investors have nowhere to hide

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New York, USA (CNN)–The stunning collapse of the recently valued $32 billion FTX cryptocurrency exchange is the latest bad news for investors in Bitcoin, Ethereum and other digital assets. But 2022 was a really bad year for cryptocurrencies before the FTX-Binance drama.

Bitcoin price is currently hovering around $16,500, down from the $20,000 level just a week ago. However, even the $20,000 level is a far cry from the $46,000 price Bitcoin was trading at on the last day of 2021.

It turns out that investors who had hoped that higher interest rates and higher levels of inflation would be good for so-called alternative assets like cryptocurrency and gold, were wrong this year.

They have taken a hit just like stocks and bonds, proving that there is nowhere to hide in a market where worries about high interest rates and recession prevail.

Gold prices are down about 6% this year, and the price of the yellow metal is not far from the lows it hit at the start of the Covid pandemic in early 2020. Gold, like Bitcoin, rose in the latter part of 2020 as a type of safe haven trade.

So can gold and cryptocurrency bounce back? The strength of the US dollar has hurt both precious metals and cryptocurrencies. Why buy gold or digital assets when the dollar proves to be the king of currencies?

Some experts hope that the worst may soon be over for Bitcoin and other cryptocurrencies.

Historically, Bitcoin has seen huge ups and downs

This isn’t the first time that there’s been a so-called crypto winter. Bitcoin prices have been remarkably volatile over the past few years, but they still outperform many of the major stock market indices.

When we look at Bitcoin prices since the summer of 2020, we find that they have risen by more than 80%, even though they were far from a smooth performance. By way of comparison, the Nasdaq is up just 1% from its July 2020 levels.

“Bitcoin and Ethereum have had their ups and downs, but they’ve been gaining a lot since mid-2020,” said Jeff Dorman, chief investment officer at Arca, a crypto company. “Over this long horizon, digital assets are still outperforming tech stocks.” .”

The cryptocurrency crash has also led to a significant drop in the shares of publicly traded companies with ties to Bitcoin, such as Coinbase, miners Hive and Riot and Bitcoin bank Silvergate.

Is the backlash in the crypto sector overrated?

Some analysts believe that it is wrong to punish the entire crypto industry for problems with FTX. The imminent collapse of FTX, one of the largest cryptocurrency exchanges, has raised questions about contagion.

“While we acknowledge that the FTX saga could impact the crypto space in the near term, we also believe the sell-off in [Silvergate] shares reflects a significant misunderstanding of the company’s platform mechanics,” Mark Palmer, head of digital asset research at BTIG, said in a report.

A venture capitalist focused on bitcoin and crypto assets agreed that the problems with FTX would not derail the entire digital asset world.

“Investors do not appear to be concerned about the impact of FTX on the future of Bitcoin,” said Alice Keelen, founder and managing partner of Stillmark. Her company recently invested in bitcoin infrastructure company Hoseki, which is also backed by parent company Fidelity.

Keelen added that the drop in bitcoin prices that was taking place even before the FTX crash is a sign that the cryptocurrency is not a true hedge against inflation and a stronger dollar.

That may eventually change once Bitcoin matures. But at the moment, the adoption of cryptocurrencies is still in its infancy. So dollar strength is still negative for bitcoin.

Gold does not shine

The dollar’s strength has been a headwind for gold as well, and it is not yet clear if the US currency will weaken significantly anytime soon. Although October inflation figures showed a smaller-than-expected jump in consumer prices. This could lead to the Fed starting to slow down the pace of interest rate hikes.

“In this current environment, monetary policy remains the dominant force. I will be looking to see what happens to investment demand and the price of gold once inflation stabilizes at a steady rate,” said Joe Cavatoni, chief market strategist for North America at the World Gold Council.

Cavatoni said that gold’s weakness this year is mainly due to a “more tactical response to the continued hike in interest rates and the strengthening of the US dollar” from large institutional investors.

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