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Investors advised to look at potential of blockchain technology rather than coin recovery
By Lee Min-hyung
With Bitcoin slumping to a 19-month low of $19,000 (24.5 million won) last week, the outlook for the world's most sought-after cryptocurrency is getting murkier amid escalating jitters in the global asset market.
The recent crash of major cryptocurrencies ― such as Bitcoin and Ethereum ― made headlines here and abroad, as the scale of their downfalls was much worse than that of major stock indices.
According to data from CoinMarketCap, the price of the Bitcoin fell by more than 30 percent between June 8 and 18. Three months ago, Bitcoin was traded at more than $40,000, but is now undergoing a bigger-than-expected fluctuation in the aftermath of growing market uncertainties sparked by the Fed's giant rate hikes.
Ethereum, the world's second-most valuable cryptocurrency by market capitalization, also nosedived for the past few months on such growing fear sentiment in the market. The price of Ethereum hit an historic high of more than $4,500 back in November of last year, but was hovering at around $1,000 as of early this week.
Despite the growing sense of crypto uncertainty, some institutional investors have expressed optimistic outlooks over the major cryptocurrencies in the longer term.
"We see an upside for Bitcoin and crypto markets more generally," JPMorgan strategist Nikolaos Panigirtzoglou wrote in a note last month.
The global crypto market is widely considered to have entered winter amid investors' escalating fear. The abrupt collapse of the Terra-Luna ecosystem last month also added more concern to the overall market sentiment on crypto.
But the investment bank explained that the outlook for the crypto market remains promising in that venture capital funding into the market showed little sign of diminishing even after the sudden demise of the once-promising Luna cryptocurrency, the value of which once soared to the world's sixth-highest.
The bank estimated Bitcoin would be able to bounce back to $38,000 from a short-term perspective, and the value of the leading cryptocurrency is estimated to soar to $150,000 in a long-term outlook.
Sejong University's Kim Dae-jong, a professor of business, said investors should focus more on blockchain technology in itself, rather than jumping into the crypto trading boom amid its high price volatility.
"Cryptocurrencies do not have any inherent or exchange value, so they tend to fall much more sharply than stocks," he said. "The focus should be on the growth potential of blockchain technology, not a a certain crypto coin's recovery, as they are more volatile than any other assets, which means investors are exposed to a high risk of losing their invested capital at any time."
It became harder for market insiders to predict the outlook for cryptocurrencies after the abrupt demise of the Terra ecosystem, under which its stablecoin UST was supposed to be pegged to $1 all the time.
But after UST started failing to defend its intended $1 peg in early May, its sister token, Luna, also collapsed to near zero, surprising the global crypto market, as it took less than a week for the two promising coins to lose market trust completely.
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| U.S. Fed Chairman Jerome Powell speaks during a news conference on interest rates, the economy and monetary policy actions, at the Federal Reserve Building in Washington, D.C., June 15. AFP-Yonhap |
Coupled with the Luna debacle, the global macroeconomic environment bodes ill for the crypto market, which has reinforced the plunges of major large-cap cryptocurrencies over the past few weeks.
The Fed took a giant rate hike of 75 basis point in June, and is widely forecast to take the same step once again in July, in a desperate bid to tame inflation.
Another such rate hike is feared to weaken already-downbeat crypto sentiment from investors further. Given that the prices of cryptocurrencies moved generally in tandem with major stock indices on Wall Street, chances are that the current crypto fluctuations will continue for the next few months.
"Bitcoin declined as the risk appetite left Wall Street because investors became worried of a much quicker deterioration for the U.S. economy," Edward Moya, a senior market analyst at OANDA, said. "Surging recession fears are crippling the appetite for risky assets and that has crypto traders remaining cautious about buying Bitcoin at these lows."
The analysis came in response to the Fed's recent revision of its GDP growth forecast. Last week, the Fed revised down the U.S.' GDP growth forecast to 1.7 percent from its earlier outlook of 2.8 percent. It also expected prices to increase 5.2 percent this year, up by 0.9 percentage points, from its earlier forecast of 4.3 percent.
Starting this year, monetary authorities here and abroad are on a path to raise their benchmark rates to bring soaring prices under control. But it appeared not to be enough, as was shown by recent monthly consumer price indices.
Korea's consumer prices increased by 5.4 percent in May from a year ago, which increases the likelihood for the Bank of Korea to continue taking a hawkish monetary stance even until the end of this year. Consumer prices in the U.S. also soared by 8.6 percent last month, the sharpest rise in more than four decades there.
This month, the Nasdaq set this year's new low amid the ever-growing monetary tightening signals from the Fed, which also pulled down cryptocurrencies. The benchmark KOSPI also has continued to report a losing streak in recent weeks, sending negative market signals for a near-term recovery of the major cryptocurrencies.
