Cryptocurrencies: uncertainty rules the markets in mid-April

The so-called greed and fear index for conventional stock markets is currently hovering in limbo. In recent months, encouraging news for investors has repeatedly appeared in the crypto industry – for example, when the crypto community was looking forward to the Ethereum upgrade. But the oppressive “Russian” winter sets one mood: uncertainty.

The new year is off to a good start for cryptocurrencies, breaking a tradition that has been around for years. Things are bleak in traditional finance on both sides of the Atlantic – high inflation, the effects of COVID (supply chains have been particularly hit), the energy crisis and, of course, the situation in Ukraine threaten the prospects of those assets, in particular, which are counting on strong growth in the future – and this crypto assets and technology stocks.

These risky assets reflect the situation that is happening in other markets. The S&P500, which displays the 500 most important listed companies in the US, is in danger of the worst quarter since 2009 (the financial crisis). Economist Nouriel Roubini warns of a “long and ugly” recession in the US, which no longer surprises many.

On this side of the Atlantic, and therefore much closer to what is happening in Ukraine, things look a little bleaker. The eurozone recession is 10%, slightly higher than the US (8.5%), and it is now considered clear that Europe’s largest economy, Germany, will also fall into recession in 2023. Parallel to news like this or pipeline explosions in the North Sea, you can watch leading European stocks such as the DAX or STOXX 600 (a reference index for Europe) fall for several months. The case of Credit Suisse is also currently worrying the market, with one of the leading Swiss banks recording losses of around 60% in 2022.

Even very strong stocks such as the Dow Jones and STOXX 600 lost 20%. Today, it is unlikely that anyone will be able to predict exactly where stock prices and the global economy will go – the situation is even more uncertain than it already was between the threats of nuclear bombs from Russia, policy shifts to the right in European countries such as Italy and Sweden, and the imminent return of Donald Trump.

What many are counting on: further increases in key interest rates throughout 2023. Both the US Federal Reserve and the European Central Bank (ECB) will continue to fight high inflation by raising interest rates. In the US, the key interest rate is already between 3% and 3.25% – one or two more steps up and the mark of 4% will be reached. The ECB has raised its key interest rate in the euro area to 1.25% from time to time – here, too, further increases to 2% or even 3% are to be expected.

Weak inflation protection

In the meantime, it has become apparent that bitcoin, which is often presented as an “inflation hedge,” is losing value a lot. The current increase is an exception. It is only in short periods that BTC or Ethereum manage to break free from the pull of the general financial economy and develop their own momentum in the process. But in most cases, the connection of BTC and ETH rates with events on regular exchanges cannot be overlooked. “Inflation protection” – this only applies to those who invested before the inflation surge or to those who, in countries like Turkey or Argentina, see very different inflation rates.

The bottom line is that investing in risky assets with more than an uncertain outcome is a nebulous situation.