- Crypto markets have recently crashed as part of a global sell-off in risky assets.
- Bitcoin has fallen by 25% in the past month, while Luna has lost 99% of its value.
- Three crypto experts told Insider how they saw the future of cryptocurrencies.
This is an edited, translated version of an article that originally appeared on May 21, 2022.
TerraUSD (UST) — a stablecoin that uses an algorithm to maintain its value by keeping it pegged to the US dollar — recently broke away from its dollar peg, which caused its sister coin Luna to lose over 99% of its value.
In an interview with Insider, Philipp Sandner, the head of the Frankfurt School Blockchain Center at the Frankfurt School of Finance & Management, said bitcoin and other crypto tokens had been “dragged along” with the crash of UST and Luna.
Sandner said the collapse resulted from numerous overvaluations and inflated token prices, which he referred to as “almost monstrous structures” that have emerged in the cryptosystem.
But it’s not just UST that’s causing problems for bitcoin and the crypto world. Rising interest rates also affect prices, said the crypto analyst Timo Emden of Emden Research, a research firm that focuses on cryptocurrencies and blockchain. “The days of ‘cheap money’ are over.”
“Rising interest rates are proving to be poison for risky asset classes,” he said. “The fear of rapid interest-rate hikes, especially by the US
record-low interest rates of the past few years., is taking away one of bitcoin and company’s most important stimuli in recent months,” he continued, alluding to the
Bitcoin and other cryptocurrencies also appear to be correlated with tech stocks, as the crypto crash comes on the back of a sell-off in more established stocks.
But Emden believed that it’s still a “fantastic and promising” technology.
“All the swan songs to bitcoin are, in my view, too early,” Emden said. But from a fundamental and technical point of view, the outlook has “clouded over considerably,” he added.
On bitcoin’s price, Emden added that “a slide to $20,000 should not come as too much of a surprise.”
For the crypto analyst Thomas Faber of Rudy Capital, the current macro view is “relatively gloomy.” But he feels the long-term outlook “remains positive.”
“Nothing has changed in the foundations, value propositions, and visions of most crypto projects,” Faber said. “Its disruptive firepower in many areas, such as decentralized finance, remains unchanged and will continue to gain momentum in the coming years,” he added.
But in the short term, he said, investors should expect further declines.
Emden said the recent crash indicated the current aversion to risky asset classes. “Investors are fleeing their investments in panic,” he said.
“No one wants to catch the falling knife at the moment. Bargain hunters continue to stay away. The fundamental, as well as the technical, situation remains clouded. The stock-market lights are still red,” Emden added.
Many investors must decide whether to try to wait out the crash or sell off their remaining book profits at the “last second,” he said.
“So there’s a danger of the downward spiral continuing. Momentum has developed, which is difficult to stop,” Emden continued. He added that investors should prepare for further uncertainties in the coming hours and days.
For Sandner, the crypto crash leaves “a lot of scorched earth” for investors, especially those who “never really engaged with cryptocurrencies, but just invested in any old tokens.”
The professor believed that we were in one of the “worst crises for crypto assets.”
“Being part of the crypto scene has given me a thick skin over the years,” Sandner said.
He’s experienced such crashes a few times. He said the first time you experience a crash, “you’re shocked. The second time, you’re also shocked because you thought it wouldn’t happen again. But then you realize that crypto markets, just like stock markets, are often incredibly overvalued.”
Sandner believed this wouldn’t be the last crypto crash: “Sometime in a few years, bitcoin will plummet again.” He said this
provided an argument for stricter regulation to contain crypto’s “wild growth.”
Sandner said that many people “have lost a lot of money” and now don’t have the resources or the will to invest more, so they’re “turning their backs” on crypto. He added that this creates a lack of
and means the price can’t rise.
Sandner didn’t believe that crypto prices would continue to fall further at the moment. “My gut feeling is that we’ve reached the bottom,” he said.
Bitcoin has fallen by about 25% in the past month, while ethereum has fallen by about 35%, and solana by about 50%. It appears that the tokens all correlate with each other, Sandner said.
If bitcoin fell another 25%, then because of the correlation, the other cryptocurrencies would fall another 35% or 50%, which means they would have crashed by about 75% in just a few weeks, he added.
“Maybe a lot of things were inflated, but I can’t see the tokens only holding around 20% of their original value,” Sandner said. But he added that “anything is possible with bitcoin.”