Crypto Collapse & Gold sell-off left investors with nowhere to hide

The past few weeks have been critical for investors, with the crypto market in freefall and the gold market taking a hit as well. The recent sell-off has been especially painful for those who were investing in both crypto and gold as a hedge against inflation.

The implosion of cryptocurrency exchange FTX and the $32 billion valuation it once held is just the latest bit of worse news for investors in bitcoin and Ethereum. Nevertheless, 2022 has already been a bad year for cryptocurrency before the FTX-Binance saga.

Bitcoin prices have been in flux this week, dropping to $16,500, which is considerably down from its all-time high of $20,000. Still, when you compare it to the price back in 2021, trading over $46,000 a coin at the end of December that year – which was still up significantly since earlier in the year – bitcoin is actually worth more than it was just last week.

Investors who thought that rates on alt-assets like crypto and gold would rise due to higher inflation and interest rates have been disappointed this year. The FTX logo is visible on this umpire’s uniform at the war between the Washington Nationals and the Colorado Rockies.

One of the world’s largest crypto exchanges experienced a sudden decline, which could impact the sports industry. Even they are experiencing the same volatility as stocks and bonds, showing that there really is no safe haven in a market fraught with worries about rate hikes and the potential for recession.

Gold prices have fallen by an average of 6% this year, close to where they had been before the Covid-19 pandemic. Once Covid-19 hit, gold surged in 2020 as people saw it more as a safe trade.

How things are going doesn’t look good for gold and cryptocurrencies. The US dollar has been on a fantastic run lately, and the strength of this fiat currency is hurting interest in precious metals and cryptocurrencies.

Bitcoin and other cryptocurrencies have faced a lot of hostility, with many experts fearing that the worst is yet to come.

Although Bitcoin has had periods of both highs and lows in the past, it has seen larger swings lately.

There has been a so-called crypto winter before. Bitcoin prices have historically been unpredictable, but they still outperform significant indexes across the board.

One of the biggest causes of this massive increase in bitcoin prices is that nothing has changed. The political environment and fiscal policies have remained the same. Furthermore, the Nasdaq has only increased by 1% since July 2020.

Bitcoin and Ethereum have had some fluctuations and changes in price over the last few months, but still, the FANG stocks are not outperforming cryptocurrency. 

The cryptocurrency crash has caused a severe drop in the share prices of publicly traded companies associated with bitcoin. Companies like Coinbase, mining firm Hive (HVBTF), and bank Silvergate (SI) have all seen their prices fall drastically.

The cryptocurrency market has been volatile, but not unusually so.

Even though FTX is at the center of a cryptocurrency crisis, some analysts think the entire crypto industry shouldn’t be punished. The near collapse of FTX, one of the massive cryptocurrency exchanges, has prompted concerns about contagion across the market.

A report from Mark Palmer, the head of digital asset research at BTIG, pertains to the FTX saga. He claims that because of “the sell-off in [Silvergate] shares,” it would be hard for the crypto space to be impactful in the near term.

A venture capitalist specializing in bitcoin and crypto assets argued that FTX’s problems would only derail part of the digital assets universe.

Crypto winter is leading to layoffs in the global economic community

Investors were left scrambling to find safe havens for their money. Some sought refuge in government bonds, while others moved into cash. But with interest rates at near-record lows, there weren’t many options for investors seeking safety from the storm.

The sell-off in riskier assets like stocks and cryptocurrencies has raised concerns that we could be headed for a broader market correction. While it’s impossible to predict the future, it’s important to remember that markets go through cycles of ups and downs. And after a long period of gains, it’s not unusual to see a pullback like we’re seeing now.

That may change once bitcoin becomes more popular. But for now, it is still a fledgling technology.

Bitcoin is still a relatively young form of currency, payment, and store of value.

Gold isn’t glittering anymore

“All that glitter is not gold.”

The worth of the US dollar has been a hindrance to gold prices, so it’s too early to tell if the dollar will weaken any time soon. Although October inflation figures showed a smaller-than-expected increase in consumer prices, this could lead the Fed to start slowing their rate hikes.

While gold and cryptocurrencies have both been seen as safe havens during market turmoil, Tuesday’s sell-off showed they could both be vulnerable to sharp declines.

Investors are losing confidence in both asset classes as a secure place to keep their money amid increasing concerns about inflation and higher interest rates. The sell-off in gold also suggests that some investors may be liquidating their holdings to raise cash to cover losses in other asset classes.

The dollar could have more room to grow. This would be bad news for gold, which typically thrives when the dollar is doing poorly.

Bob Doll, the chief investment officer at Crossmark Global Investments, said, “cash has still been king.” The dollar eventually has to weaken, which could spark gold prices to rise again. However, it takes time to predict currency market bubbles.

With the crypto market in freefall and gold prices tumbling, it’s been hard to find a haven for your money. But don’t despair – there are still opportunities if you know where to look. In this market environment, diversification is critical. So consider adding non-correlated assets to your portfolio, like real estate or precious metals. And remember, this too shall pass.

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