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Many Coins Will Not Recover This Crypto Winter

Written by:
Alejandro Botticelli
Published on:
Jul/05/2022

Whether it's the Doug Polk-promoted CoinFlex or the nearly worthless MiamiCoin, the Crypto Winter will have its casualties.

Gavin Lucas of CoinGeek writes that yet another crypto bear market has arrived.  This one is likely to be far worse than what we experienced in the early years of Bitcoin with the first bleak period of February 2011 resulting in the price of a single Bitcoin (BTC) hitting $1.06. 

Years later, the ice age arrived. 2017 was a landmark year for Bitcoin.  Investors had amassed a fortune when the digital coin hit $20,000 only to dip all the way down to $3,236 in December 2018.

Recklessness

Today, in addition to the Polk fantasy platform of CoinFlex, more prestigious and trusted hedge funds have been hit hard as well.  Three Arrows Capital (3AC) is in the process of entering liquidation while lenders like Celsius and BlockFi face possible insolvency.

Lucas expands on just how reckless Three Arrows Capital was.

This one hedge fund seems to have borrowed from every digital currency lending platform in the industry and leveraged long on everything it could get its hands on. Founders Kyle Davies and Su Zhu are paying the price now, and they’re blowing holes in the balance sheets of some of the biggest lending platforms in the industry as they hurdle rapidly towards the end.

Entire governments are now red-faced.  Miami billed itself as one of the first Bitcoin cities, hosting a crypto conference that certainly resulted in an economic boon.

But MiamiCoin, a private cryptocurrency benefitting the city and heavily promoted by Mayor Francis Suarez, has seen its own decline in recent weeks.

“A percentage of the benefit for verifying the transaction from one person to another is what goes into the city’s digital wallet,” Suarez said. “The biggest misconception is that the city has put money into (MiamiCoin). We did not. The city has just been a beneficiary of it.”

Suarez can be forgiven as the Miami economy will hardly come crashing down due to a weakening coin.

Not so for El Salvador.

That country's President appears to have placed a signficant amount of faith - and money - into the future of Bitcoin's growth potential, becomint the first nation to adopt Bitcoin as a currency.  Nayib Bukele's bet is not paying off.

"The president took out $150 million from the reserves of the country to invest in these projects of Bitcoin," associate professor at the Terry College of Business, Julio Sevilla, told NPR. That amount represents 4% of reserves. "So it is obviously not an amount that they can take for granted, but it's not an amount that will necessarily, you know, bankrupt the country. The GDP is $25 billion right now. The debt of the country is more than $20 billion - so a very small amount. But still, you cannot really afford to make bad investments when your finances are precarious to start with."

The Fed, Interest Rates and More Bad News to Come

What happens to risk assets when central banks raise rates?

Lucas explains the likely fallout:

"We’re watching it play out in real-time. BTC has tanked from a peak of over $60,000 in November 2021 to barely holding $20,000 in June 2022. So much for the ‘hedge against inflation’ narrative. Meme stocks like Tesla have cratered, and the S&P 500 has entered bear market territory. Some other digital currencies have tanked even harder than BTC, and as happened in 2017, many of them will never rise again.

"Yet, this is only the beginning. The Federal Reserve has made it clear that it will continue to raise rates aggressively until inflation is under control. As the yield available on Uncle Sam’s bonds increases, they will continue to get more attractive. Institutional investors who may have been thinking of allocating funds to risk assets like BTC will be parking it where they know the return on investment is getting better and the return of investment is 100% guaranteed.

"Expect the vast majority of institutional capital to leave the digital currency space until this trend reverses, or at the very least, expect no more to enter."

Blockchain Technology is the Most Significant Evolution of Software Since the Internet

Bank of America says that the 'Crypto Winter' concerns have not frozen investor interest.

“Client engagement continues to grow and focus remains on the rapid development and disruptive nature of blockchain technology, despite falling token prices and headlines suggesting the ecosystem’s demise has arrived,” a note from the bank said.

The bank insists that blockchain technology delivers the most significant evolution of software since the internet, and concludes that the emerging ecosystem of Web3 applications has the “potential to transform every industry.”

Billionaire and supporter of the BSV Blockchain, Calvin Ayre concurs.

"I think mostly US-based payment companies and tech companies – significantly Silicon Valley and the VCs that fund them – who are using business models that are going to be disrupted heavily by this technology," he said, specifically in reference to BSV. "I think the Crypto Space itself is upset by this technology, simply because it gives a better example of how the technology can be used, but they’re secondary; the real power that’s threatened is the US-based payment and tech companies – significantly in Silicon Valley.”

- Alejandro Botticelli, Gambling911.com

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