Billionaire cryptocurrency investor and Galaxy Digital CEO Michael Novogratz warned that things could get worse for cryptocurrency markets before they get better.
This week, the total market capitalization of cryptocurrencies fell below $ 2.000 trillion for the first time since July 2021, down more than 50% from last November's all-time high of $ 3.000 trillion.
This coincided with a drop towards $ 30.000 per bitcoin token (quotation BTC) (the low since last July) and with a drop towards the annual lows of under $ 2.500 of ethereum (ETH). Both are currently trading slightly below their respective all-time highs above $ 69.000 and close to the $ 4.900 recorded last November.
Galaxy Digital's Novogratz warns that tough quarters lie ahead
Novogratz said one of the main challenges cryptocurrency markets face is their growing correlation with US tech stocks, which have taken a hit in recent times due to rising interest rates.
In recent months, yields on US government bonds have increased significantly (the 1,40-year yield has risen more than XNUMX% since the beginning of the year) due to a "hawkish" turn by the US Federal Reserve in response to the persist high inflation this year.
While the bank had only expected a few interest rate hikes this year until the end of 2021, rates are now expected to reach around 2,5% by the end of the year and push up to 3,5%. in 2023.
Higher interest rates mean a higher "opportunity cost" of holding assets that are not profitable (such as cryptocurrencies, commodities, and shares of unprofitable companies) or which are underperforming (such as shares of profitable companies, but with a price / earnings ratio very high).
During Galaxy Digital's Q1 2022 earnings call last Monday, Novogratz explained that "cryptocurrencies will likely trade in a correlated manner to the Nasdaq until we reach a new equilibrium."
He warned that investors should prepare for "a very uncertain, volatile and difficult market for at least the next few quarters, before people perceive that we have reached an equilibrium".
PolySign's McDonald says H2 rebound is "indisputable"
In an interview with CNBC, Jack McDonald, CEO of PolySign, said that "it seems to me that we are trying to hit rock bottom". Many speculative investors were kicked out, while institutional investors and HODLers remained stuck, McDonald explained.
McDonald added that while a combination of macro bearish factors such as rising interest rates, concerns about persisting high inflation and fears about global economic growth are weighing on cryptocurrencies in the short term, longer term. term still expects demand for inflation protection and positive growth trends within the cryptocurrency space to support digital asset prices.
According to McDonald, large global institutions are increasingly believing in the underlying blockchain technology, which means that higher quality tokens and assets will continue to prevail over the long haul.
Finally, when asked if he expects a rebound in the second half of 2022, McDonald replied that it is "indisputable", stating that real money entering the cryptocurrency space sees the recent downturn as an opportunity for the long term. term. “I remain very, very optimistic,” he concluded.
