When asked if it is a good or bad time to invest in these types of assets, it is not always known how to value them, since they do not produce anything, except trust for those who believe in them.
Anyone involved in the world of cryptocurrencies will have suffered the so-called “crypto winter” after the plummeting value, during the last months of the misnamed digital currencies.
The most famous and largest trading volume of all, Bitcoin, began trading in 2008 and its value plummeted more than 70%, from almost US $ 70,000 per unit that came to trading in November 2021. This has been its third major historical correction, along with November 2018 and March 2020.
Why BTC Corrections Have Happened
One of the factors that has been able to influence this correction is the higher cost of mining Bitcoins with Blockchain technology, which implies a large energy consumption, which could be causing the “big whales”, that is, the big Bitcoin holders, to have had to sell their digital assets as it is not as profitable to produce them. With Bitcoin now trading at just over $20,000, experts say the profits from producing it drop significantly because that’s the average amount it costs to produce.
To this has been added that it must be taken into account that some of these “whales” have had to generate liquidity to execute guarantees or repay the debt requested to produce them at an incremental financial cost due to the rise in interest rates in the financial markets.
But perhaps most importantly in this correction is that some players in the ecosystem are starting to assess whether Bitcoin and other denominations are really crypto assets or cryptocurrencies. That is, if they have a reserve of value due to the technology behind them and if they can also perform the function of a currency that could be used as legal tender at some point.
Crypto Assets: Assets or Coins?
On many occasions, one might wonder if it is a good or bad time to invest or divest in this type of asset, to which there is no certain answer since it is difficult to value them, since they do not produce anything, except trust for those who believe in them.
If, on the other hand, shares or bonds are examined, their value depends on cash flows discounted at a risk rate, that is, they depend on the wealth that the asset produces in currency, discounted at the risk of obtaining that wealth.
Perhaps that is why it is worth asking if crypto assets are assets or currencies. If they are assets they should produce money in the discounted future to value them and if they are currency they should be able to be used as liquidity. Both scenarios are difficult to explain.
This world of digital assets and their brutal volatilities create great media attention and have become the dream of many investors eager to get rich on the purest Russian roulette. And they also have a claim effect on all kinds of well-known characters such as soccer player Cristiano Ronaldo who has established a sponsorship agreement with the cryptocurrency platform Binance.
However, it is worth being aware that major platforms such as Coinbase, Gemini, and crypto.com have recently announced layoffs due to slow business hours. In regards to cryptocurrencies, Warren Buffett recently stated that if he were offered all the Bitcoins in the world for $25, he would not buy them.
The collapse of the Luna and Terra tokens is apparently proving him right, as is the decline in the total value of the crypto market, which has gone from $3.2 trillion to less than $1 trillion in a few months. However, freedom is the greatest thing that the markets have and each one is free to invest in what motivates them the most, as long as our performance is the product of analysis.
By Audy Castaneda
