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“There is no established way to value Bitcoin,” says Noelle Acheson, Head of Market Insights at Genesis Global Trading. “It’s narrative driven – narratives can turn on a dime.”
The cryptocurrency storm that engulfed the world in its tight chokehold in 2021 has now simmered to a loose grasp per say. The Bitcoin singlehandedly created a market worth $1 trillion, but its triumph after the 2009 global financial crisis has now turned into a ‘crypto winter’; its worth has nosedived into less than half of what it was in November of 2021. Several experts have a penny to spare regarding how this turmoil in the crypto world is actually linked with fear of the assumed incoming recession.
This ‘crypto winter’ has been wrought due to two disadvantageous features of cryptocurrencies that have always created disambiguation regarding their status as digital gold with high return. These two traits are lack of intrinsic value and crypto’s status as a speculative asset.
“Crypto is an investment in nothing,” Munger said to the Australian Financial Review in a July interview. “I don’t want to buy a piece of nothing, even if somebody tells me they can’t make more of it.” Lacking intrinsic value means that cryptocurrency by itself does not produce any tangible benefit for its owner, its return solely lies on the price one can sell it for to another buyer. Investors and crypto enthusiasts have also reached a general consensus regarding the tediousness in valuation of crypto, although it is not completely impossible.
Its second trait, being a speculative asset, might just be the nail in the coffin for this crypto winter. In times when stagflation and recession are living fears amongst the global community, the lack of economic growth and simultaneous turmoil can land serious blows to the currency’s status. Ed Moya, a Senior Market Analyst at OANDA claimed that a sense of market panic has led to sell offs in crypto, similar to how the stock market is currently behaving. But, crypto has still devalued, acting against its expected nature which has cemented it to a death sentence due to its sensitivity to speculation.
These two factors have combined to create the ultimate test for crypto. With uncertainty still tainting the global community’s minds and the Federal Reserve increasing interest rates, the digital market is expected to get worse before it gets better. Hence, it's easy to say that cryptocurrencies will stand the test of time, with some coming out triumphant, while others facing the threat of losing their grip on digital platforms completely.