“If you look at the fundamentals—blockchain adoptions, user expansion, real use cases being unearthed, you wouldn’t think the industry is going anywhere down,” says His Excellency Justin Sun, Grenada’s ambassador to the World Trade Organization, and creator of the TRON blockchain, whose stablecoin usdd also lost its peg to the dollar last week. “The market is full of FUD [fear uncertainty and doubt] right now, the crash of [terra-luna] and the more recent insolvency issues of some DeFi platforms and funds out there are not helping either, but I’m a believer in rational expectations and the market corrects itself. There’s always been cycles, and we are sitting on the slippery slope of the current one.”
Speaking last week, Paolo Ardoino, Tether’s chief technical officer, spotted a silver lining in the crisis, at least where bitcoin is concerned. “Bitcoin might have already proven to be more solid and be less subject to volatility than other coins. Bitcoin went down 60 percent—but the other altcoins went down much farther than that. So bitcoin is showing much more resiliency,” Ardoino says. “We might see a scenario where bitcoin starts to rally in the next months, while the rest of the ‘alt-coins’ remain down.”
The elephant in the room, however, is the fact that cryptocurrencies—assets routinely touted as a hedge against inflation and the vagaries of the financial system—are behaving exactly like the rest of the stock market. Ardoino himself drew a parallel between bitcoin’s misfortunes and the recent disastrous performance of Netflix stock, which tanked by 40 per cent in a single day in April over disappointing subscriber figures.
Jamie Burke, the CEO of crypto venture fund Outlier Ventures, says that crypto has been behaving exactly like a stock and that they are moving in lockstep because the lines between them have blurred. The vertiginous price highs and the feverish hype around crypto have sucked in a lot of new money from institutional and retail investors spending their stimulus money on stock trading platform Robinhood. “Digital assets began to be linked to the wider macro environment,” Burke says. “There’s a whole lot of money that came into the financial system: they began to use that to speculate, and so crypto definitely benefited from that. But similarly when the wider macro environment changes you see that negatively reflected in digital assets.”
“I also think crypto might enjoy more extreme highs on good news and extreme lows on bad news. So for example—if peace were declared by Russia, I think crypto would pump. Why? It doesn’t really make any sense, but it probably would,” he says.
Another way to look at it is that crypto was never a hedge against inflation—or against anything, for that matter. Instead, it was always bound to become just another piece of the wider financial ecosystem. Sam Doctor, chief strategy officer at consultancy BitOoda, says that crypto is now used as one of many possible “risk-on” assets. People looking for a place to park their capital, and who have possibly already put money into the stock of high-risk technology companies, would naturally move up the ladder to bitcoin, and then to more obscure crypto-assets. “With interest rates close to zero, the market essentially said, ‘let’s go ahead and take some risk, it’s fine,’” Doctor says. Now that the rates are going up and inflation is biting, crypto is the first thing that gets ditched from a portfolio, he argues. “This is the only time now we’re actually looking at bitcoin and asking whether it really is an inflation hedge. And the answer that the markets are telling us is: no.”