Analyst expects more negative news for cryptos and more suffering for crypto related projects
By Noemi Jansana / Alejandra Zamora
Date: Monday 08 Aug 2022
(Sharecast News) - Bitcoin embarked on a consolidation around $22,000 - $23,000 since a couple of weeks ago and has relaxed the mood of investors to such an extent that it invites confidence and the belief that the worst is behind us. The wave of bankruptcies in May and June went down in history as the 'Lehman moment' of the cryptoasset market, although experts warn that no one is safe in a sector completely exposed to economic ups and downs, as they are not few.
Digital tokens are entering a quarter in which dark clouds are on the horizon that will become a storm in autumn. The aggressiveness of central banks to contain inflation, which will soon reach double digits in the UK and the US and reached more than 10% in Spain, and their lack of success, is leading the main countries into a recession that is expected to last as long or longer than that of the 2008 crisis, and in this context, risk assets will have a particularly hard time.
"I think the more prudent scenario is to expect more negative news: interest rates still have room to rise, and that will drain even more liquidity to the 'crypto' market. More projects are likely to suffer in that environment," commented Ramiro Martinez-Pardo, CEO of HeyTrade, in a conversation with 'Bolsamania'. A recent note from Bank of America also warned about this. Experts from the US entity stated that the digital currencies market seems to have already discounted many risks, but that of recession in an environment of ever-higher rates and runaway inflation will take its toll on cryptographic tokens.
As to whether this context could lead to a new wave of bankruptcies and company closures such as those experienced by Terra, Celsius or Three Arrows Capital, to name but a few, Martínez-Pardo asked to distinguish between "project-specific causes and the environment affecting the entire crypto universe." "The industry itself was calling for a correction after very strong rises in recent years and it is normal to see a fall in the prices of the main coins," he explained.
"The consequence is that those projects that are most vulnerable when funding and volumes are reduced do not manage to survive: in some cases it may be that they were non-viable projects from the start; in others, a series of very specific circumstances coupled with a lack of funding from investors ends up sentencing them. In that sense, it is the same thing that has happened so many times, both in the crypto sector and in so many others," he noted.
"We have lived through similar cycles on other occasions," stated the expert as he stressed that "confidence will return when investors' profit prospects outweigh the risks they perceive." "It will largely depend on the macro environment and how much central banks end up raising interest rates in the end: the less liquidity the more the crypto world will suffer."
REGULATION
When asked if the regulatory wave that we are seeing arrive in the European Union and the US, with some haste, is the direct consequence of this situation, Martínez-Pardo stated that "it may be" so, although, he pointed out, "part of the regulation was already in preparation for a long time. Regulation was urgent both with and without this "pinprick".
The US is on the verge of enacting legislation to regulate cryptocurrencies that would authorize the Commodity Futures Trading Commission (CFTC) to be the default regulator for cryptocurrencies. In the EU, MiCA is already taking shape with a first agreement on cryptoasset markets law that is "among the most comprehensive proposed globally," HeyTrade's CEO assessed. "Just like the ecosystem, it will have to constantly evolve in order to maintain its relevance and currency," he concluded.
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