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Is it worth investing into Bitcoin currently?

(commentary of Mr. Vladimir Pikora - macroeconomist and financial analyst)

Dramatically high inflation rates lead to a logical question: what to invest in, so that the return offsets the rice of prices and the savings do not lose value.

Previously, shares were a popular investment opportunity, now cryptocurrencies are also on the agenda. The price of shares has fallen significantly this year, but not as much as the price of cryptocurrencies. Their global value has fallen by 2 thirds over the past 12 months - from 2.5 trillion to 820 billion USD. Bitcoin itself lost 75% of its value - from 56,000 to 16,000 USD. Such a brutal drop raises the question of whether the price of cryptocurrencies has reached the bottom and it makes sense now to start buying them.

The sad truth is that supporters of cryptocurrencies were wrong in their belief that

the price of bitcoin is independent of the development of the economy. According to them, the price of bitcoin should have fully reflected the fact that its quantity is limited. Unlike money that can be printed on and on, bitcoins with their predetermined total amount were supposed to have an anti-inflationary effect, whereas the blockchain technology was destined to maintain the bitcoin's internal value.

However, reality very quickly showed that bitcoin and other cryptocurrencies are not

a parallel world independent of the world economy. As soon as the world experienced a sharp rise in interest rates, there was an immediate shift of interest from risky investments (stocks and crypto) towards assets ensuring a stable return, such as anti-inflation bonds or term deposits.

This radical change lead to imminent internal problems of the cryptocurrency market - from the crash of some fringe cryptocurrencies and smaller companies to the collapse of FTX - the major FTX cryptocurrency exchange. It showed how the infrastructure of

the crypto world is interconnected and how panic is transmitted across the entire industry.

It is unlikely that the crypto world will disappear - there is already too much money invested in it and too many people connected to politics are involved. After all - the head of FTX - Sam Bankman Fried - was one of the biggest sponsors of Joe Biden's presidential campaign.

But it is equally bold to think that bitcoin and other major cryptocurrencies bottomed out. Interest rates in the world will go even higher, and FTX may not be the last major crypto firm to collapse. The world of cryptocurrencies will probably come to life once the stock market comes to life. And once it is reasonably regulated, so that the confidence to this market is restored. Even after that, buying cryptocurrencies will be an option for brave investors who are not afraid to take risks. And even then, cryptocurrencies should play not a main, but just a complementary role in a portfolio of a prudent investor.


České noviny (30.11.2022)


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