Bloomberg: FTX collapse undermines Bitcoin's status as an investment asset

14 November 2022 81
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Source: Bloomberg

Author: Garfield Clinton Reynolds

ArticleOriginal article

Publication date: Monday, November 14, 2022


The distress spreading to other cryptocurrencies amid the collapse of FTX Exchange is fracturing the link assets previously had with other risk assets, which is a sign that Bitcoin's impact on global investors may decrease.

 

The idea that Bitcoin was a beneficial part of a diversified portfolio of risk assets was undermined by huge losses resulted from the revelation that even FTX, until recently considered one of the most successful cryptocurrency exchanges, ended up being unsound. 

 

Bitcoin saw a decline of 23% last week, marking the worst tumble since June. Meanwhile, the S&P 500 index added 5.9%, marking the biggest weekly gain since June. The correlation between these variables has fallen to the lowest level this year. The correlation gap between Bitcoin and the Nasdaq index is the largest since 2020. 

 

According to Chris Weston, head of research at Pepperstone Group, the idea of using cryptocurrencies for risky trading is fading, as there are easier ways to play that don't suffer from the same systemic risk. He added that it was a structural problem, it was about the actual architecture of the cryptosystem and confidence in it. Many investors are discussing who will be the next to go bankrupt.

 

The CoinGecko website revealed that the total market value of all tokens had fallen more than 70% from a record peak of just under $3 trillion seen a year ago.

 

The current worth of the crypto market of $843 billion corresponds to less than 1% of the world equities market. Stocks are still down 16% since the beginning of the year but a resurgence of broad risk appetite, fueled by hopes for a slower pace of rate rises by central banks, caused the stock market to go up by more than $13 trillion since it bottomed on October 12.

 

In 2021, a strategist at JPMorgan Chase & Co. Nikolaos Panigirtzoglou highlighted that bitcoin could reach $146,000 in the long run by displacing gold. However, he said last week that it could fall to $13,000 amid current turmoil in the market. 

 

Forecast: BTCUSD fall

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