Op-Ed: Insights into latest crypto rout from Axiory Global CEO, Roberto D’Ambrosio
I have repeatedly warned about the almost linear correlation of the cryptocurrencies with the stock market, which clearly linked the stellar performances of cryptocurrencies to the market sentiment which has been over-enthusiastic for a very long time, given also the flood of liquidity poured into the system by the Central Banks.
As the market sentiment started heading significantly south, with the stock market losing more than 20% from its highs, there comes the rush to convert Crypto to Fiat, creating an enormous selling pressure on all of them.
Besides the above, there has been a rush to new coins in the like of thousands, which have literally nothing backing them, not even the strength of being the first kid on the block and/or a proven structure, and/or anything “original” in respect to the most affirmed and capitalized coins like Bitcoin, Ethereum, etc.
All this closely resembles the .dot com bubble, which created a frenzy in which people would buy anything that even resembled a link to the internet and the related economy. We all know how it ended: those companies that had substance survived, after falling 80+ % off their highs, and made a remarkable come back over the subsequent years. All the rest disappeared, not even their name survived.
Truth is the cryptocurrency concept has value, given its structure and easiness/efficiency of transfer deriving from the very valuable underlying technology, the blockchain.
Therefore, to the disappointment of the many thinking, we were on the verge of the next step of the rules under which the economy and the financial markets function, nothing new under the sun. The hype and the greed brought the crypto assets to the non-sensical rate of growth in terms of “value”, on which further structures have been built luring in a lot of investors seeking easy gains, like the case of the Terra-Luna structure and more recently Celsius Network. The algorithms on which they were functioning were based on the rate of growth of the underlying digital assets and completely disregarded their intrinsic weaknesses. As soon as serious volatility hit the market, such algorithms simply do not work anymore.
How are MENA investors reacting to the crash?
Based on the information I have so far, Investors in MENA seem to be much less impacted by the steep downturn in the crypto valuation.
I believe that this can be linked to the cultural approach to investing that characterizes the region.
MENA investors are sensitively more cautious in their approach to investing, are very sensitive to volatility and tend to enquire more in regard to the instruments they are considering, especially when it comes to assets which are new and not in the pool of their preferred ones.
Yet, unfortunately, I believe that everywhere in the world, there might have been a considerable number of investors, especially among the ex-pat communities, that might have an overweight crypto asset in their portfolio, and which are now under pressure given the sharp fall in valuation.
Should investors ”buy the dip”?
This is a very risky strategy but can be pursued if the part of the investment portfolio to dedicate to cryptos is clearly determined, based on the amount of liquidity available for the medium to long-term investments and the individual risk tolerance to the overall volatility of the investment portfolio.
As I believe that the correlation with the risky assets in the “traditional” markets like stocks will continue, I would be cautious in starting to buy aggressively right now. The inflation biting the world economies is not episodical, but systemic in my opinion. Therefore, the interest rates will need to rise and there is no more cushion to inundate the market with liquidity (finally!) unless we want to kick the can down the road once more and create an issue that would be even more difficult to manage.
Any near-future prospects in terms of price fluctuation?
If we agree on the above analysis, the pressure to the downside, with some rebounds here and there will continue in the short term. Meanwhile, the market will consolidate. The vast majority of the existing coins will probably disappear, along with the hype schemes based on unrealistic growth expectations, and the coins which really embed value will reach a valuation which will be more in line with what we would consider a fair value.
Of course, no one can anticipate when the trend will reverse, but again being considerate in investing, and gradually increasing the exposure to cryptocurrency, as well as in any other risky asset, is key.
Roberto D’Ambrosio
Roberto is a well-known mentor, educator, compliance expert, and director who’s played an integral part in leading several global brokerage firms to success. As Director and CEO of Axiory, Roberto has been involved in the set-up and management of all core processes, focusing on risk management and expanding the licensing footprint of the Group. He holds a BA in Law and an MBA from Henley among several other qualifications.
