May 15, 2021

Cryptocurrencies aspire to be a safe haven but scares their volatility



The role of cryptocurrencies during this crisis has become the subject of debate, as some experts believe that they can function as an active refuge, a kind of “digital gold”, while others still look at them with suspicion due to their high volatility.

The behavior of cryptocurrencies since the coronavirus crisis broke out has followed the same pattern as that of other assets, with a rise in February, a sharp fall in March and a subsequent recovery.

In a statement to Efe, eToro spokesman for Spain, Javier Molina, highlights that bitcoin – the most widely used cryptocurrency – is listed on regulated futures markets and that, being uncorrelated from the rest of the market, it can become a store of value , a “digital gold”. In his opinion, “bitcoin is in an initial phase and very promising.”

“Bitcoin’s capitalization is 2.5% of the value of gold. If people trusted this cryptocurrency and reached 10%, we would be facing a great investment opportunity, ”Eurocoinpay CEO, Herminio Fernández, explains to Efe.

However, many experts have their doubts about these assets. XTB analyst Joaquín Robles points out, in statements to Efe, that cryptocurrencies continue to present the same problems as before the pandemic and cannot be considered safe haven in times of uncertainty, an opinion shared by Allianz Global Investors chief economist Stefan Hofrichter.

Hofrichter defends that, although their promoters consider them an active refuge, they are not “safe” due to their dependence on an algorithm, to which their volatility is added.

In this crisis caused by the expansion of the coronavirus, cryptocurrencies have behaved similarly to other values, with a sharp drop in March and a subsequent recovery.

Bitcoin, the best-known cryptocurrency, was trading at around $ 9,000 before the crisis and reached $ 10,500 in February, its highest so far this year, but in mid-March it plummeted to 3,800.

It is now trading around $ 7,000 and, according to eToro data, represents 63.4% of the total cryptocurrency market.

Other crypto assets have had a similar evolution to bitcoin, with highs in mid-February and a sharp drop a month later. In the case of Ethereum, the asset reached $ 280 and then fell sharply to 112, while Iota, less capitalized, touched $ 0.342 and later fell to 0.104.

Currently, they are trading at around $ 175 and $ 0.15, respectively, so they are recovering, but have not reached the level prior to the pandemic.

The volatility of these assets means that many investors do not dare to invest, although the CEO of Eurocoinpay recalls that there are also stable cryptocurrencies, which are digital assets that aspire to maintain a price without great volatility, for example, anchoring it to that of the US dollar.

An example of a stable currency would be the Facebook project, Libra, which was launched last June with the backing of 27 large corporations, although some later withdrew their support.

“I don’t think it will go forward as it was presented at the time. In my opinion, it scared the markets and especially the international regulators. Being a centralized currency, its investors do not like it very much, ”says Herminio Fernández.

Another centralized currency on the table is DC.EP, the Chinese government’s project to launch digital money, timely in the context of the current pandemic, in which money could be one more contagion factor.

In Spain we are still far from seeing cryptocurrencies as a normal means of payment, says Joaquín Robles, who emphasizes that they are not covered by any organization or supervisor.

Javier Molina also does not believe that we are going to pay with cryptocurrencies, while the CEO of Eurocoinpay believes that they could even replace fiat money (which is based on trust and is not backed by a real asset, such as gold).

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