So why are cryptocurrencies crashing? It is important to remember that in this last cycle, crypto assets are not alone. The stock market has also been experiencing a recession, as U.S. policymakers seek to control inflation by tightening the money supply and raising interest rates. The sudden drop in wealth has fueled fears that the fall in cryptocurrencies could help trigger a broader recession.
Then there's all the mystique surrounding the nascent crypto sector. It may be among the smallest asset classes, but the bustling industry attracts a lot of attention in popular culture, with announcements about major sports championships and stadium sponsorships. Gans says that's a big part of the reason why the cryptocurrency market remains rather a side show for the economy. The relationship between cryptocurrencies and debt is key.
For most traditional asset classes, their value is expected to remain moderately stable for some period of time. That's why those property assets can be used as collateral to borrow money. Morningstar strategist says two FAANG shares look incredibly cheap right now. According to a recent research note from Morgan Stanley, crypto lenders have been lending primarily to cryptocurrency investors and firms.
Therefore, the risks of spread from the fall in cryptocurrency prices to the broader US fiat banking system may be limited. Despite enthusiasm for bitcoin and other cryptocurrencies, celebrity investor and venture capitalist Kevin O'Leary points out that most digital asset holdings are not institutional. Gans agrees and tells CNBC that he doubts that banks are so exposed to the massive sale of cryptocurrencies. According to a Goldman Sachs note from May, cryptocurrency holds account for just 0.3% of the value of households in the U.S.
UU. The company expects the burden on aggregate spending caused by recent price drops to be very small. O'Leary, who has said that 20% of his portfolio is in cryptocurrency, also points out that these losses are distributed around the world. Shah says that the weakness of the cryptocurrency and digital asset sector is part of a broader correction of risky assets.
Instead of bringing down the economy, cryptocurrency prices are following a downward pace of tech stocks, as both succumb to pressure from major macroeconomic forces, including the spiral of inflation and a seemingly endless succession of Fed rate hikes. Mati Greenspan, CEO of crypto research and investment firm Quantum Economics, also blames the tightening of the Federal Reserve. Do you have confidential informational advice? We want to hear from you. Get this in your inbox and learn more about our products and services.
Crypto bank Celsius abruptly halted withdrawals in recent weeks due to “extreme conditions” in the market, and crypto hedge fund Three Arrows Capital could be in the process of liquidation. Reconsider what you would be most comfortable with in the future, such as allocating less money to cryptocurrencies in the future or diversifying through cryptocurrency-related stocks and blockchain funds instead of buying cryptocurrency directly (although you should still expect volatility when the cryptocurrency markets) fluctuate). The co-founder of the automated cryptocurrency trading platform Coinrule, Oleg Giberstein, believes that cryptocurrencies are suffering the same tensions as other parts of the economy, leading to falling prices. The crypto ecosystem has firmly adhered to the traditional financial system, and the dollar dominates cryptocurrency markets just as it does with traditional financial markets.
The cryptocurrency exchange said it hasn't been harmed by cryptocurrency companies seeking protection against bankruptcy. .