Cryptos miserably fail in protecting investors against inflation
- The market volume of all cryptocurrencies currently in existence subsequently fell to around $861 billion, less than a third of the record high of almost $3 trillion set in November.
Once seen as an attractive inflation hedge due to its limited supply, the ongoing turmoil in cryptocurrencies is likely to make investors sceptical about it.
"Over the weekend, the price of the digital currency Bitcoin, the oldest and largest digital currency by market value, fell well below the $20,000 mark," analysts at Swiss-based research house LGT Navigator said in a report on 20 June. The report further added that the market volume of all cryptocurrencies currently in existence subsequently fell to around $861 billion, less than a third of the record high of almost $3 trillion set in November.
Experts say, in theory, the limited supply of coins makes crypto, especially Bitcoin, a hedge against inflation. However, the reality is a sharp contrast. So far in this calendar year, the Bloomberg Galaxy Crypto Index has declined by around 65%. In comparison, the price of gold, which is seen as a traditional protection against inflation, in the international spot market is down only 0.21%. In fact, crypto has fallen more than some of the key equity indices, for instance, the Nasdaq 100 Index, which has corrected by 28%. Note that retail inflation in the US, UK and euro zone has soared to multi-year highs recently.
What's more, with the US Federal Reserve on a spree of rate hikes and quantitative tightening, the outlook for cryptocurrencies is not too encouraging, at least for now.
Also, analysts caution that in the past, Bitcoin crashes may have been followed by a rally, but this time around, the situation related to the global economy and inflation is different and much more challenging.
No wonder then that global institutional investors are shunning this popular investment avenue. According to the Global Markets Division’s June Marquee QuickPoll survey, which saw participation from 1,500 institutional clients, published by Goldman Sachs, the institutional investor community turned more bearish on bitcoin this month (48% of investors are bearish versus only 12% who say they are bullish).
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