Bogotá — The volatile month in in the financial markets, as investors once again fear a possible recession in large economies around the world, coupled with high levels of inflation, has reawakened investor appetite for safe-haven assets such as the US dollar, but are cryptocurrencies an attractive option too?
Cryptocurrencies have not been immune to global uncertainty and some digital assets have had dark weeks with significant declines. The prolonged sell-off such assets amid heightened risk aversion has pushed the crypto market value below $1 trillion.
In addition, the collapse of the Terra blockchain and the recent decision by crypto lender Celsius Network Ltd. to halt withdrawals are also taking their toll on crypto values, while undermining confidence in the assets.
To give an example, in the last month Bitcoin has lost 30.32% of its value, with its price on Monday at $20,492 while on May 21 it was around $29,408. In the case of Ether, the cryptocurrency sank 43.27% over the last month as its price on Monday night was $1,119, a month-on-month difference of more than $853.
The case of Colombia
They say that every crisis brings opportunity, and it seems that many Colombians are adhering to the adage amid the situation on the international markets and the increased fears of risk, and to which crypto has been no stranger.
Bloomberg Línea spoke to a number of experts in the crypto sector to find out how Colombian investors have behaved at this juncture.
Executives at crypto exchange platforms Buda and Panda said that, in the midst of the falling prices, many people have seen opportunities to generate earnings in the medium or long term, and have turned to crypto to do so.
Alejandro Beltrán, president of Buda Colombia, said: “there is a growing appetite to buy by those who missed the bullish rally of 2020 and 2021, understanding bitcoin cycles. There is no massive investor outflow. Speculators and investors always exit and enter, but now the panorama changes to risk appetite as a result of the steep fall and the opportunity prices”.
Contrary to what might be expected, that there would be a massive outflow of investors from the crypto space, Beltrán says that, in the case of Buda Colombia, “the number of new accounts has increased by 33% during the month, and the volume of deposits in pesos for purchase increased by 25% over the same period”.
“The fall [in crypto values] is due to external factors that have not impacted the fundamental of bitcoin, which is its technology and uses that are becoming clearer every day in e-commerce, in the market for international payments and money transfers, and in the long-term possibility of safeguarding value in the face of geopolitical events that occur due to particular interests,” he added.
According to Typson Sánchez, CTO of Panda, “the global fall of cryptocurrencies only slows down the speed of adoption a bit, because it is always more pleasant to enter a new market when it is generating steady profits”.
He added that “those who manage cryptocurrencies at the investment level are clear that this is a long-term race.”
Adding to Buda’s Beltrán’s view, Sánchez said that “user behavior accelerates when market volatility increases, and stagnates when we experience lateral movements in bitcoin prices, i.e. when the price remains in a similar range for a long period of time”.
According to Beltrán, it must be recognized however that there is a deep nervousness about what is happening with cryptocurrencies, just like what is happening with the uncertainty in traditional financial markets, so it is very important to make a deep analysis before making purchasing decisions, and especially in Bitcoin.
“It is necessary to understand the fundamentals of Bitcoin, the risk-return relationship of the asset, as it has a high risk profile, and the time horizon, since being a high-risk asset, in the short term it is exposed to high volatility due to externalities, but in the long term the expectation is of profits that beat the market in general,” he said.
What does the future hold?
“That’s a difficult question and the answer is, we do not know in the short term,” Beltrán says. “But what is certain is that the price of Bitcoin has been affected by external factors that do not compromise the adoption or the developments that are materializing in the case of uses such as payments and shipments.”
For Panda’s Sández, from Panda, “the outlook in the world of cryptocurrencies in the short term is uncertain as it depends on variables that are somewhat complicated to determine with precision, but those of us who have some time in the industry know that the final outcome will be favorable, although it is difficult to determine when”.
“The message for investors is to get more involved in learning about Bitcoin and other cryptocurrencies, only expose resources with which they have no short or medium-term obligations, and see Bitcoin as a long-term savings technology that transforms and will transform the financial industry as we know it,” Beltrán said.
Translated from the Spanish by Adam Critchley