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Crypto Spring
The history of past financial crises and recessions has proven that downtrends in the stock market or any market are natural. And although they might be painful, they are part of the economic cycle. They lead to unemployment and, for a certain time, a distinct level of uncertainty in the stock market. This pattern of events occurs with cryptocurrency, most especially Bitcoin. It is volatile, like most cryptocurrencies, and has a long history of busts and booms that many investors wonder if adding cryptocurrencies to their investment is a wise decision.
2022 dealt hard with cryptocurrencies, Bitcoin especially. The crypto lost more than half of its value from the previous year. In November 2021, Bitcoin hit $69,000, a record high. Just a year after, it plunged to below $16,000. More than four-fifths of its value. What was the cause of this? How would an investment that gave investors a roller coaster ride the previous year be heading in the opposite direction?
Over the past decade, cryptocurrencies and the innovative technology that supports them have grown into a small segment of the traditional financial market but have completely dominated the digital finance world. Despite a total market capitalization of $1.1 trillion in August 2022 (down from its record high of $3 trillion), it's still only 2.5% of the U.S. equity market capitalization. Despite this, crypto assets and blockchain technology have a promising future, and a Crypto Spring is inevitable.
Most parts of the book, Crypto Spring , have shed more light on these correlations, and we have come to see that the crypto world operates differently from the existing financial system. It will be wise to point out that the failure of TerraUSD shows that financial principles still apply in the crypto space. Recall that several times we stressed how cryptos and securities shared a positive correlation during a bearish market.
To gain a deeper understanding of this asset class, its value, and the varying levels of volatility in different crypto markets, you need to compare various crypto assets to each other and more traditional assets such as equity markets, bond indices, gold, and fiat-pegged currencies. Understanding volatility risk is crucial for properly evaluating capital and margin requirements when incorporating crypto assets into portfolios, trading protocols, and lending protocols.
Before we round off with that, let's examine these assumptions about the crypto space.
Cryptocurrencies, excluding certain stablecoins, are known for their high volatility compared to traditional financial assets like stocks or bonds, which can result in significant drops in value or substantial gains. Although TerraUSD stablecoins in 2022 failed to stay pegged to the USD and lost their stability.Historically, cryptocurrencies (excluding certain stablecoins) tend to correlate with their returns, despite having different start dates and operating independently.Cryptocurrencies typically have little to no correlation with traditional financial assets regarding returns, except during a bearish market. While Bitcoin does not hold value in the same way as gold, this is a rapidly changing field, which may change as the cryptocurrency might become investors' choice of hedge against inflation. Stablecoins are a type of cryptocurrency whose value is linked to an external benchmark such as a fiat currency. However, their performance and design can vary greatly, and some may not live up to their intended use, as seen with the recent failure of TerraUSD.
2022 dealt hard with cryptocurrencies, Bitcoin especially. The crypto lost more than half of its value from the previous year. In November 2021, Bitcoin hit $69,000, a record high. Just a year after, it plunged to below $16,000. More than four-fifths of its value. What was the cause of this? How would an investment that gave investors a roller coaster ride the previous year be heading in the opposite direction?
Over the past decade, cryptocurrencies and the innovative technology that supports them have grown into a small segment of the traditional financial market but have completely dominated the digital finance world. Despite a total market capitalization of $1.1 trillion in August 2022 (down from its record high of $3 trillion), it's still only 2.5% of the U.S. equity market capitalization. Despite this, crypto assets and blockchain technology have a promising future, and a Crypto Spring is inevitable.
Most parts of the book, Crypto Spring , have shed more light on these correlations, and we have come to see that the crypto world operates differently from the existing financial system. It will be wise to point out that the failure of TerraUSD shows that financial principles still apply in the crypto space. Recall that several times we stressed how cryptos and securities shared a positive correlation during a bearish market.
To gain a deeper understanding of this asset class, its value, and the varying levels of volatility in different crypto markets, you need to compare various crypto assets to each other and more traditional assets such as equity markets, bond indices, gold, and fiat-pegged currencies. Understanding volatility risk is crucial for properly evaluating capital and margin requirements when incorporating crypto assets into portfolios, trading protocols, and lending protocols.
Before we round off with that, let's examine these assumptions about the crypto space.
Cryptocurrencies, excluding certain stablecoins, are known for their high volatility compared to traditional financial assets like stocks or bonds, which can result in significant drops in value or substantial gains. Although TerraUSD stablecoins in 2022 failed to stay pegged to the USD and lost their stability.Historically, cryptocurrencies (excluding certain stablecoins) tend to correlate with their returns, despite having different start dates and operating independently.Cryptocurrencies typically have little to no correlation with traditional financial assets regarding returns, except during a bearish market. While Bitcoin does not hold value in the same way as gold, this is a rapidly changing field, which may change as the cryptocurrency might become investors' choice of hedge against inflation. Stablecoins are a type of cryptocurrency whose value is linked to an external benchmark such as a fiat currency. However, their performance and design can vary greatly, and some may not live up to their intended use, as seen with the recent failure of TerraUSD.
203 pages, Kindle Edition
Published February 16, 2023
About the author
Lawrence Wilson
16 books7 followersLawrence E. Wilson has worked in Silicon Valley, CA (USA) for almost 30 years. He has worked for leading high tech vendors including Cisco, IBM, WebEx and Nortel Networks. Moreover, he obtained his BA degree from the University of Michigan and an MBA from George Washington University. Lawrence is the Founder-Owner of Genesys Ventures (eTraining & eCertification) and Genesys Digital (ePublishing).
His audio and ebook series include:
Data Driven Organizations
Era of Digital Finance
Learning Wizard
National Security and Foreign Policy
The Interview Prodigy
Transformative Innovation
He is passionate about salvation, the Jewish people and Israel, innovative technology, including artificial intelligence, digital finance, quantum computing and autonomous vehicles.
Lawrence is also intrigued with the principles and techniques for "learning and education". Many of these ideas are found in his "Learning Wizard" book series.
His audio and ebook series include:
Data Driven Organizations
Era of Digital Finance
Learning Wizard
National Security and Foreign Policy
The Interview Prodigy
Transformative Innovation
He is passionate about salvation, the Jewish people and Israel, innovative technology, including artificial intelligence, digital finance, quantum computing and autonomous vehicles.
Lawrence is also intrigued with the principles and techniques for "learning and education". Many of these ideas are found in his "Learning Wizard" book series.
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