Markets have been bad-mannered with investors for the last 12 months, or is it rather that Investors have been bad-mannered with the markets? What we know for sure is that 2022 has upended the hopes for a generation to have access surplus funds. The recent cryptocurrency meltdown is no exception but rather the confirmation that all assets are subject to a pure re-evaluation.
The FTX exchange, once valued at a humble $32 billion, has taken a sharp and awful end, without any prenotice. This should be a clear reminder for all digital investors that bitcoin and ethereum, amongst others, and all these digital assets are not backed by a nominal asset and are evolving totally outside any governance. Also, in the past they were promoted as absolute safe-havens and that no one would be able unlock the valet—yet the events around FTX and the disappearance of more than $1.5 billion in bitcoin value have just provided evidence that this is not the case.
Bitcoin, which was trading above $ 46’000 at the end of 2021, is now down to around $16’500; investors were hoping that rising interest rates and stubbornly high inflation would be the perfect hedge! The same actually applies for investors who felt that XAU would benefit, being the king of all assets, from the extreme volatility for global assets. It turns out that none worked out. More importantly, those investors who were hoping that rising interest rates and higher levels of inflation would be good for so-called alternative assets like cryptos and gold have been in for a rude reality shock.
Some experts argue that the worst could soon be over for digital currencies and that better times are ahead for gold too. We partially agree with the latter but not with the former. Regular readers may recall these two articles about gold prices and digital assets.
Digital asset investors may disagree, but a good number of experts are the opinion that the run-up in digital asset prices is a bubble and that prices have further to fall. The real question is not by how much but rather when the price will crash. Consequent to this question is “What will be the impact of such a crash?”
Recent research suggests that that the disappearance of digital currencies, if it were to happen in full, is expected to be almost nil. The fact is that its ecosystem is very small and most of its participants were seeking some kind of alternative fund transfer opportunity. This statement is clearly validated as long-established banks and investment firms have largely stayed away from the bitcoin craze and their exposure to cryptocurrency markets.
This brings us back to the question of this article, i.e., are there any places where investors can hide out?
We long argued that well-analyzed vulnerabilities offer excellent opportunities. We also promoted that investors benefit from secular growth trend, in particular the ones that are exposed to Semiconductors and Healthcare.
While the value of these investments has corrected YTD, the rally experienced over the last two days clearly highlights the strength of the business model and how much they interconnect with the day-to-day interactions with broader society—status which cryptocurrencies have not yet achieved.