Real world uses for
and other cryptocurrencies have always been a bit weak. But the growing bear market is shaking up to such dubious applications, according to JP Morgan’s chief investment strategist.
“Fortune may not favor the brave after all,” said Michael Cembalest, president of market strategy and investment for JP Morgan Asset Management, in a scathing note on crypto released on Tuesday.
The argument that Bitcoin is a reserve of value continues to disintegrate before our eyes with its eroded price, the high correlation with
index, and a volatility that remains five times higher than the
Bitcoin was trading at around $ 29,000 on Wednesday, 58% less than its peak of about $ 69,000 last November. Overall, more than $ 1 trillion in cryptographic market value has disappeared in the last six months as tokens of
The fall in the value of Bitcoin also repudiates the argument that it is a hedge against inflation, which is operating at an annualized rate of 8%, he points out. And Bitcoin is not taking off as a medium of exchange with daily transactions still below 2018-2020 levels.
The rest of the crypto markets, including decentralized financing or DeFi platforms for trading and lending; blockchain based games; and the “stable currencies” that are supposed to act as digital dollars are also crumbling, in his view.
DeFi platforms have experienced a sharp drop in the “locked” value in their protocols, falling from about $ 250 billion in December 2021 to $ 109 billion now, according to DeFillama.com.
Blockchain-based games are also suffering. The tokens associated with Axie Infinity, an online game for trading digital pets, have collapsed, in part due to a recent $ 600 million Axie-related blockchain hack. Other gaming sites such as Sandbox and Decentraland had an average of about 1,000 people a day in late April, Cembalest notes. “I think that’s the number of people who still use Lotus 1-2-3,” he said, referring to an old spreadsheet program.
More developing countries are imposing rules or cracking down on cryptography. And the idea that non-fungible tokens, or NFTs, would go to the rescue of exchanges like
(ticker: COIN) seems questionable, in his opinion.
“Coinbase claimed to have three million users on its NFT waiting list, but since its launch it has not seen more than 200 NFT transactions in a day,” writes Cembalest. Coinbase did not respond to a request for comment.
Cryptographic sales are not limited to tokens. Bitcoin mining stocks have been crushed, Barron’s reported recently. Many environmentally focused investors criticize the industry’s large carbon footprint, which consumes as much electricity annually as countries like Norway.
Granted, Cembalest has long been a crypto-skeptic. In a February report called Maltese Falcoin, it came out swinging against Bitcoin, DeFi, stablecoins and NFT, although it argued that blockchain technology itself had some good uses.
Proponents of cryptography argue that as the market goes through a setback, the industry will emerge with less speculative foam and consolidated blockchains that could fuel a next generation of financial services, gaming, and payments.
“Weakness in late May / early June should create an attractive time to consider buying cryptocurrencies in general, and this is in line with cycles that are likely to bottom out in the near future,” Fundstrat Global analyst Mark Newton said in a statement. note released on Wednesday.
It doesn’t help that central banks raise interest rates and tighten monetary policies, put heavy pressure on investors, and increase correlations between cryptocurrencies and “risky assets” such as technology stocks.
“The internet bubble that exploded in 2000 was a reminder that emerging technologies / assets are synonymous with volatility,” Bloomberg Intelligence Merchandise Strategist Mike McGlone said Monday. “We see the crypto winter of 2022 as a necessary cleansing of speculative excesses to solidify the foundations.”
If the wash is not finished soon, there is not much left to clean.
Write to Daren Fonda at firstname.lastname@example.org