Not just “Bitcoin winter”, “crypto ice age” is coming when this event takes place

Things are slowly getting cold in the “land” of cryptocurrencies. Bitcoin on January 22 broke through the $35,000 mark from its November 2021 peak of nearly $69,000. The trading volume also decreased accordingly.

Some investors fear that the market is entering a “crypto winter”. This was a period of sharp declines and could not be recovered for more than a year, when the US Federal Reserve (FED) suddenly tightened monetary policy.

But the situation could be even worse than that. Paul Jackson, Invesco’s head of global asset allocation research, told Insider recently that cryptocurrencies may in fact be heading for an “ice age” where prices stay at multi-year lows. and many investors will suffer losses.

Not only the policy of the Fed, many potential investors doubt the stability of cryptocurrency technology. At the same time, regulations can stifle industry growth.

In early 2021, “Bond King” Jeff Gundlach said that he thinks Bitcoin is the “stimulus asset” most driven by “cash flow” from the Fed and the US government during the epidemic crisis.

But less than a year later, the Fed is pulling back its stimulus measures to tackle soaring inflation. The market is looking forward to three rate hikes in 2022.

As a result, soaring bond yields knocked out unprofitable tech stocks and cryptocurrencies. The two speculative asset classes become far less attractive as the returns on risk-free bonds are higher.

According to Invesco’s Jackson, it is more likely that cryptocurrencies and tech stocks will continue to take a hit as bond yields will continue to rise significantly. “Central banks and governments have played a role in supporting these markets, and when those policies are reversed, I think they’re going to let them down,” he said.

Even bulls like Galaxy Digital founder Mike Novogratz say that the cryptocurrency is likely to continue to come under pressure. Jackson says crypto could enter an “ice age”. If you remove the conditions the Fed creates, the outlook could change.

Of course, many crypto advocates disagree with this opinion. Dan Morehead, CEO of investment firm Pantera, said last week the sector will continue to thrive as the use of cryptocurrency networks has increased.

He specifically points to the growth in decentralized finance, or DeFi, where financial operations such as transactions are possible without the need for an intermediary thanks to cryptocurrency technology. .

But many other investors are less convinced because they are concerned about regulations. Russia’s central bank this week proposed a complete ban on cryptocurrency mining and trading, prompting investors to sell off massively on January 21. European regulators may be prepared to strengthen their regulations. Spain and the UK are also tightening their grip on cryptocurrency ads.

James Malcolm, head of forex strategy at UBS, told Insider that problems with crypto technology coupled with tighter regulation could drag the crypto world into another winter.

Malcolm cited the blog of the founder of messaging app Signal, who concluded that blockchain technology is complex and decentralised. Meanwhile, users of the Ethereum cryptocurrency network are frustrated by congestion and high transaction fees.

Many in the tech sector are questioning whether cryptocurrency technology will work. Malcolm said: “The question is, if this is clearly next-generation technology, why aren’t many big tech companies using them? Why isn’t Google investing massively in them?” .

Reference BI