In recent weeks, the cryptocurrency markets have witnessed significant fluctuations, as the value of most major currencies has fallen due to the decisions of the US Federal Reserve System to raise interest rates, which, in turn, was the result of a wave of recession and inflation that the world has witnessed.
In a report for The Independent newspaper, writer Hamish McRae stated that the past weeks have been difficult for everyone who owns bitcoin, which on June 9 traded above $ 30,000, but fell below $18,000, and then achieved a partial recovery, and now has reached more than 19,000.
The writer noted that the best thing to do in such turbulent times is to think calmly, look for the best sources of new information that would help make appropriate judgments.
He suggested that we can learn 5 main lessons from this uneven period and one area of complete uncertainty that will last at least two years.
Dealing with extreme volatility
According to the author, the first lesson stems from the extreme volatility of the last few days, as the bitcoin market is very tense due to its huge market capitalization. At a price of about $19,500, the market value of this digital currency is $370 billion, surpassing the oil giant Shell, which is worth about $200 billion.
With an asset of this size, it is expected that there will be many short-term traders who tend to buy when the value of the digital currency decreases and sell when it increases, which helps to balance the market price, so that significant price movements occur only when new information arrives.
On the other hand, this does not happen with bitcoin; it is traded 24 hours a day, 7 days a week, and it seems that large price fluctuations occur at midnight European and American time, but it remains an illiquid security, and if you try to sell or buy a large amount of this currency can bring you big losses, and since this applies to bitcoin, it also applies more to other cryptocurrencies that are more volatile.
Find Out the Truth about Cryptocurrencies
The author added that the second lesson is devoted to the fact that cryptocurrencies are not useful as a means of transactions, they can be stored as an asset, but their use is limited only if you want to buy something, and most likely they cannot be used even for money laundering.
Bitcoin is legal in two countries, El Salvador and the Central African Republic, but reports published last month showed that the value of Salvadoran property has fallen by 50%, and its use in stores seems to have become limited.
Boarding a flight
The third lesson, the author noted, is that the cryptocurrency will take time to recover. For example, Mike Novograd, founder and CEO of Galaxy Digital Holdings, predicts that Bitcoin and Ethereum will take some time to return to the ascending stage.
Interest rates
The fourth lesson revolves around the fundamental issue of the Federal Reserve's interest rate policy, when last June it decided to raise it by 0.75% in an attempt to suppress inflation, even if it would lead to a recession in the United States. In this regard, this decision showed that the transition to a tighter monetary policy undermines the most complex speculative investment categories, such as cryptocurrencies.
No one really knows the situation
The fifth lesson learned, according to the author, shows that experts do not know the reality of the situation, since the report "PricewaterhouseCoopers (PwC) audit, confirmation, consulting and tax services" notes that most crypto fund managers believe that the value of bitcoin will reach 100 thousand dollars by the end of the year. end of the year.
While American businessman and programmer Bill Gates declares that he will never use cryptocurrencies, Canadian businessman Elon Musk declares that his company "SpaceX" (SpaceX) will accept payments in Dogecoin, and this statement raised the price of his shares by 10%, which proves the chaos that permeates this sphere.
Uncertainty
In fact, the usual metrics are not applicable to this type of asset, so they cannot be evaluated, which increases uncertainty.
In this regard, the author suggests that it will take the adoption of "normal" interest rates for two years before we can make a verdict on these assets, bitcoin was officially launched in 2009, so it existed in general during the period of cheap money, and there was no pricing before such a low interest period.
The return to normalcy has just begun, and the US Federal Reserve predicts that rates will range from 3.2% to 3.4% by the end of this year. However, it will take two to three years before the world adapts to the end of "free money", and after that it will become clear whether digital currencies have a future or not.
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