Investors are being bombarded from all angles. Covid continues, inflation is rampant, war rages in Ukraine, and tech stocks are deflating.
But for some corners of the market, the one and only concern is the crypto crash.
“It’s a disaster for crypto and all outside interest in it,” said one pro crypto trader at a New York firm that invests in both crypto and non-crypto assets. “There are so many frauds/zeros that are multi-billions of market cap. There’s so much more trash to take out. It’s a multi-year setback.”
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Crypto prices have been falling across the board. Bitcoin has plunged more than 50% since its peak in November, and dropped a further 20% after a Federal Reserve meeting earlier this month.
Meanwhile, so-called stablecoins are proving to be anything but stable. The Terra stablecoin appears to be the first major victim. It should trade at a one-to-one ratio with the US dollar, but has since de-pegged and is now trading at about $0.14.
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“Crypto is its own universe where new institutions — whether related to governance or finance — were built from scratch. The idea was for these to free us from the inequity and corruption of the traditional world,” said Bilal Hafeez, said founder of financial-research firm Macro Hive.
That utopia seems even further away now. The latest drops might be just the start, he said.
“There is likely more to come,” said Hafeez of the declines in cryptoassets. “The bottom line is that crypto will remain under pressure.”
To see how pro traders and their institutional investment firms are responding, Hafeez said market watchers should track flows into bitcoin ETFs.
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“There has been a noticeable bias for outflows since the end of March,” he said. “However, inflows returned recently – though small in magnitude. We want to see them sustained for a meaningful period before reconfirming a bullish signal on this front.”
This is neutral bitcoin, he said.
As for contagion beyond the crypto industry, the trader sent a shrug emoji, saying that most crypto traders tend to stay in crypto, with 80% of their assets typically confined to the asset class.
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As most banks and hedge funds don’t currently trade crypto physically, any pro traders wanting to take a chance on racking up returns in cryptoassets can do so via their personal accounts, or PAs.
With fragmented, illiquid markets, whiplash-inducing price swings and a ‘Wild West’ less encumbered by compliance and regulation, bitcoin could still offer traders a return to their pre-crisis heyday.
Backers of bitcoin often tout the adage that the cryptocurrency is an excellent gold-like haven and more people should buy it to protect themselves against inflation. This has proved untrue, at least recently.
But many pro traders — those who don’t invest in cryptocurrencies professionally — have never thought of the asset class this way. They have told FN that they see crypto as not a long-term investment or gold-like haven, but instead as a binary, all-or-nothing bet just for the fun of it.
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“It’s just a punt to make money,” one London trader told FN last year.
The pro crypto trader echoed this sentiment among his traditional finance, non-crypto trading peers: “Tradfi hedge fund people are like, ‘Told you it was a bubble’.”
Hafeez’s advice for investors of all asset classes is bearish: “Stay put and be in cash.”
To contact the author of this story with feedback or news, email Trista Kelley