Cryptocurrencies that have become more widely adopted/portfolios have dramatically changed the behavior of the market over the past two years. They were not bypassed by investors during the recent correction in the financial markets, on the contrary. De facto, they do not protect against inflationary slippage, or from rate hikes, much less from stock market corrections. Their entire market capitalization has fallen by about… 60% in a few months.
An investment tool that is difficult to understand
Inspired by excessive liquidity and speculation, they have followed the trend of more speculative “tech” stocks, namely those that are buoyed by dazzling prospects (TBC) but don’t make a profit or even a return.
They have long been decorrelated, they have behaved like derivatives for risky assets since the pandemic.
Are the first signs of stabilization encouraging at the beginning of summer?
Probably no. In recent years, cryptocurrencies, like other safe havens from outrageous central bank policies (currency depreciation), have fluctuated with global liquidity. This year they are suffering from a more restrictive turn in monetary policy. And it’s not over yet! The Fed’s quantitative tightening, which began slowly, will accelerate from the fourth quarter.
The end of the tunnel will not appear until the spring of 2023… …when the bad economic situation forces central banks to bide their time
An epilogue for one of the stars of the Crypto ecosystem?
The failures of some stablecoins, such as Luna, have eroded investor confidence and led to their demise.
Among the biggest players in the market for these stablecoins, Tether Holdings (TH) has weathered the storm. This was not guaranteed a priori, given its “special” profile. TH has indeed been under the scrutiny of the regulatory authorities for a long time. Accused of “multiple public misrepresentations” of its disclaimers/warranties, the company agreed in 2021 to a settlement of nearly $20 million with the New York Attorney General’s Office. Since 2017, TH has promised to provide audited financial statements but has not. TH did attempt to provide certificates of its assets through accounting firm HMA in the Cayman Islands. But this initiative failed after the UK Watchdog launched an investigation into the HMA (in connection with an audit of the MRG’s finances). Since then, TH has changed its accounting firm again to BDO Italia. Historically, an untimely change of auditors rarely predicts a healthy financial situation… There was also a rumor that TH mainly invested in discount Asian commercial paper (Chinese real estate).
Time is running out for Tether to hold back market pressure, and regulators will force it to quickly adopt serious accounting practices. Otherwise, regulators will have to intervene …
If TH produced a credible accounting certification, it would at least partially restore trust in crypto assets.
- Winter for crypto assets is not over yet
- Cryptocurrencies (and gold) will not get a fundamental boost until global liquidity stabilizes, likely in mid-2023.
- In the meantime, we will be keeping an eye on the Tether saga, which could lead to major upheavals in “crypto assets”.
Geravest SA is an independent boutique top-down investment advisor and investment solution provider.
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