Cryptocurrencies, the hour of disillusionment

The fall has been steep and bitcoin, the first cryptocurrency, fails to regain its momentum. While last November, its price reached a historic peak, at 69,000 dollars (64,425 euros), bitcoin has since then continued to crumble, before collapsing at the beginning of May, losing more than half its value in the space of six months. It appeared, Tuesday, May 24, below the 30,000 dollar mark. All cryptocurrencies have plunged in the wake of bitcoin, which alone weighs a small half of the entire market.

The US central bank’s decision to raise its key rates in an attempt to curb the high inflation that is hitting the United States largely explains this market downturn. The sudden end of easy money, caused by this tightening of monetary policy, had also unscrewed technology stocks listed on the stock exchange in the United States. “There is now a correlation between cryptocurrencies and risky assets, which is new”says Alexandre Stachchenko, director of blockchain & cryptos at KPMG France.

Institutional investors

Bitcoin was built with the ambition of not depending on states or central banks and was, for a time, perceived as an instrument of protection against inflation. The markets are now discovering that it is ultimately impacted by the decisions of central banks. “For the past two years, institutional investors have become the majority on the cryptocurrency market, to the detriment of individuals, as can be seen by observing the transaction volumes of the Coinbase platform, note Alexandre Stachtchenko. However, institutions adopt with cryptos the same behavior as on the financial markets. When central banks raise their interest rates, they will look for less risky assets. » A movement of caution reinforced by the very uncertain geopolitical context linked to the war in Ukraine and by the confinements in China, which are worrying investors.

The fall of cryptocurrencies has, moreover, been amplified by another disappointment: the discovery that some “Stablecoins”, cryptocurrencies supposed to guarantee parity with the dollar, only had a stable in name. The creators of the stablecoin terra (UST) claimed to be able to fix its price to the dollar, not using dollar reserves, like most of its competitors, but using an algorithm, which automatically carried out complex arbitrations with another cryptocurrency issued by the founders, the luna.

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