By Craig Erwin, Ph.D.
Cryptocurrencies have had a rough 2022. While many stocks have also fallen in price, cryptocurrencies have plummeted. Crypto adherents had claimed that, when other assets fell, crypto would act as a safe haven, maintaining its value, much like gold.
Crypto has been anything but a safe haven this year. Some cryptocurrencies have fallen 99%, even some that were pegged to the U.S. dollar and expected to maintain their value. Some exchanges offered account holders double digit interest rates, which weren’t sustainable. Now some exchanges or brokers have frozen accounts, blocking withdrawals, a clear sign of trouble. Many of the advantages that crypto was supposed to offer have vanished as conditions have shifted this year.
Even Bitcoin, the crypto gold standard, is down more than almost all stocks in the S&P500 this year. Proponents claim that crypto is a viable substitute for the U.S. dollar. But how many people pay for things with crypto at Walmart or McDonald’s? There are around 19,000 cryptocurrencies, but which retailers are going to accept even a fraction of them as payment? Even Bitcoin, the most widely known cryptocurrency, is only accepted by a handful of retailers.
Bitcoin’s price has fallen from its peak on November, 2021, when it reached $68,991. From there it tumbled 75% to $17,800 on June 18th and is now selling for $20,765. Of course, assets like stocks have also fallen this year, but very few have fallen as much as Bitcoin. Although it is not surprising that stocks have fallen, given rampant inflation and a Federal Reserve hell-bent on taming inflation and cooling the economy, cryptocurrencies were not supposed to be affected by U.S. economic conditions, being detached from the U.S. banking system.
It’s obvious that there is trouble in paradise because the stock prices of cryptocurrency exchanges, where crypto is bought and sold, have also tumbled. Some that made big profits a short time ago are now losing money and may struggle to survive. Of course, some claim that this is just a bump in the road and that the future of cryptocurrency is bright. Beware. Many who predict great things for crypto have a conflict of interest; they are invested in cryptocurrencies and/or in crypto exchanges. They may profit based on how cryptocurrencies and/or exchanges perform, so beware what they tell you.
Warren Buffett warns that “You never know who’s swimming naked until the tide goes out.” Let the buyer beware.
Do you own cryptocurrencies? If so, why did you buy them and have they met your expectations? Do you believe cryptocurrencies belong in retirement savings plans?
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