The $1 Trillion Crypto Crash


The $1 Trillion Crypto Crash

What has happened to 'digital Gold'?

May 12, 2022

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This week's midweek commentary is titled:

'$1 Trillion Crypto Meltdown.'

Stocks have had a horrible start to the year. There was nowhere to hide, but we all know, it won’t last forever and we take comfort in that.

As traders, we always feel it every inch of the way. We know it will come back, and one day, this will be a distant memory, but that doesn’t make it any less difficult when you’re in the eye of the storm.

At this point in time, as equity traders, we have the luxury of comparing current prices with actual valuations. Historically, the FTSE, CAC and DAX are all cheap; it’s a simple fact. That means over the long term, it’s very likely to be a good opportunity.

This fact, is the basis of equity investing: earnings vs price gives us an idea of value.

So what has happened in the world of Crypto currencies?

If you haven’t been watching the fall of crypto, it has been awful, and we feel for those involved.

The problem crypto currency investors are having, and it’s the very reason we don’t have crypto on our platform, is that they are trying to value something with no actual physical value.

They might disagree with this statement, but in the same way that some big tech stocks are/were inflated, crypto currency is based on the belief that demand for it will grow, and that someone else will pay more than you did.

The problem begins, when they won’t, and it would seem that the desire to invest in it, is subsiding.

Some stock portfolios have been hit harder than others so far this year. Zoom Video is down 48% ytd, Peloton has dropped 64% and Netflix is down 72%. These are big companies with big losses and certainly some traders/funds will have been wiped out.

But the bottom must be near, and sticking with value stocks and indices such as the FTSE and CAC, should bear long term gains. They have been dragged down, and should bounce once the rout has ended.

Right now, it is hard not to feel sorry for those in the world of crypto. This week saw the collapse of TerraUSD which was the 11th largest cryptocurrency. It dropped from $117 in April, to $0.23 last night. Billions of pounds has been lost by investors.

Bitcoin, the largest coin, is down over 50% from its highs.

Last night Bitcoin and cryptocurrencies dropped to levels not seen since the crypto market began surging in late 2020 and wiping away almost $1 trillion worth of value in a month as a serious "ripple" warning comes into effect.

The bitcoin price has dropped to around $27,000 per bitcoin, down 12% on the last 24 hours, and dragging down the wider crypto market with other top ten coins ethereum, BNB BNB -22.9%, XRP XRP -27.3%, solana, cardano, and avalanche recording even steeper losses.

Ethereum has crashed 22% since this time yesterday, with BNB, XRP, solana, cardano and avalanche all losing between 25% and 33%.

The sell-off comes after the $18 billion algorithmic stablecoin terraUSD (UST) lost its peg to the U.S. dollar, wiping out the price of its support coin luna which has now lost almost 99% of its value.

"Bitcoin continued to slide and closed below $30,000 for the first time since last July, although the fall did not trigger a large sell off and the price is trying to recover $30,000 in the Thursday Tokyo session," Yuya Hasegawa, a crypto market analyst at Bitbank.

"The price of bitcoin, however, could still fall due to the UST situation and worsening technical sentiment, but if the U.S. inflation continues to slow down, the macro environment will likely improve and the price will bottom out."

On Wednesday, "U.S. CPI was a mixed result: even though it exceeded market expectations, it showed a sign of slowing down thanks to lower energy prices," wrote Hasegaw

The bitcoin price has lost over 30% of its value in a week.

Tech led the markets down again on Wednesday, recording a 3.2% decline in the Nasdaq, with iPhone-maker Apple dethroned as the world's most valuable publicly traded company by oil major Saudi Aramco.

We are looking for a bottom in the equity market drop, and crypto traders will be doing the same. Sometimes, markets fall, it’s all part of life. Do you buy more, or sit tight?

It’s hard to know without the benefit of hindsight, but the way many of ourtraders on The Portfolio Platform will deal with it, is to have a core long position for the bounce, but trade in and out of small positions taking profit where possible along the way.

Some of these trades may go unnoticed given the size of current market moves, but when things return to previous levels, those gains will be on top of new ones.

Take solace in the fact that equities have an actual value. Companies are physical, earnings are factual, and right now, corporate earnings would suggest that prices in the equity markets are low. That doesn’t mean they can’t go lower, but over the longer term, it’s an attractive time to get in and buying low is what we do.

Crypto isn’t physical, and doesn’t have a value. That is why we have always avoided it. We hope too many investor portfolios haven’t been wiped out on the back of the crypto fall.

It has been a tough year for everyone so far, but we’ll get through it and should post profits in due course. Right now, we must focus on what we do and make a little money where we can; in time equities will recover. It won’t be instant, and the road will be bumpy, but the bounce will come.

If you are considering building a TPP portfolio or even pondering over investing in the equity markets in general, the recent stock market retracement is creating a fabulous entry point. Rarely do you have the opportunity to enter the markets at such a deflated value.

Combine that with the elite traders that we showcase on our platform, and we could have the makings of a very profitable next few quarters.

Get in touch with our team
here, or if you would prefer to schedule a call to discuss further please do so here.

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- London Stock Exchange 2020