When things are going well, investors like risk. But when the global economy is going through a tough time, as it is now, big business prefers to take refuge in safer investments.
Thus, in the current scenario, of great risk aversion in the face of so many uncertainties in the economy, cryptocurrencies are the first to lose their value precisely because they have high volatility.
More and more experts are warning that the world is on the brink of a “cryptowinter”, a concept used among investors to refer to a sustained drop in the price of digital currencies.
Since the beginning of this year, many analysts have been warning of this risk on the horizon.
One of them, David Marcus, an American businessman, former head of the cryptocurrency sector at Facebook and former president of Paypal, gave signs in January that winter had arrived. “It’s during crypto winters that the best entrepreneurs build the best companies,” said Marcus.
This Monday (10) bitcoin, the largest of cryptocurrencies, suffered a sharp drop that led it to accumulate a loss of half its value in the last six months.
From an all-time high of close to US$68,000 per bitcoin in November, the price has now dropped to US$33,000 (R$169,400).
The drop in the main e-currency has dragged down the rest of the cryptocurrency market, which this year has lost about $1 billion as a whole.
Why did bitcoin crash?
“Cryptocurrencies are a high-risk asset, although there are people who expect the price to rise in the long term and they will become a safe-haven asset,” says José Francisco López, director of content at Economipedia.
When stocks fall, he tells BBC News Mundo (the BBC’s Spanish-language news service), “investors prefer to get rid of the most volatile assets.”
On Wall Street, shares of technology companies grouped on the Nasdaq index fell, “following a correlation with the decline of bitcoin”, explains Diego Mora, a senior analyst at consultancy XTB.
This is because both digital currencies and tech stocks have served investors “to look for easy money”.
But since the United States Federal Reserve (Fed) started raising interest rates, there has been a greater interest from investors to seek safer assets, such as Treasury bonds or the dollar.
“In these circumstances, people sell their riskiest assets,” explains Mora.
Even more so when the prospects indicate that interest rates will continue to rise in different parts of the world to control inflation.
In addition to the increase in interest rates (which last week included large economies such as the United Kingdom, the United States and Canada), other factors are added that help to increase uncertainty about the direction of the economy, such as the confinements in Shanghai due to Covid. -19 and geopolitical tension due to the Ukrainian War.
Where does the concept of cryptowinter come from?
When the price of cryptocurrencies steadily drops for several months, experts talk about crypto winter.
The concept refers to what happened in 2018, when bitcoin dropped by as much as 80%. This sowed panic in the cryptocurrency market and caused the vast majority of digital currencies to plummet with it.
It was only in mid-2019 that cryptocurrency markets showed signs of recovery, fueled by record investments from traditional institutions such as banks and large investment funds.
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