Disillusionment on the crypto market

20. October 2022

After the extreme volatility of the crypto markets decreased in recent months, there was almost a semblance of stability. There were different signals that inspired confidence. However, the last few days and weeks have been devastating for the industry as supposed pillars of security have proven to be ineffectual. The conclusion remains, cryptos are still in their infancy and the classics of alternative investments are more trustworthy.


The intelligent investor likes to look around for alternatives. Alternative investments are often invested in because history has shown that when certain scenarios occur, their price goes up in contrast to the non-alternative investments. According to economic theory, investments that have a plausible reaction to events are considered part of an Arrow-Debreu market, or part of a perfect market. A historical example that has persisted to this day is gold. In times of war and high inflation, gold prices go up while stock market prices go down. Recently, cryptocurrencies have received a lot of attention. There have often been reports about the fabulous jumps in prices that happened within short periods of time. In fact, cryptocurrencies have also contributed to innovations such as the rapid rise of online banks, bringing capital markets as a whole closer to the younger generation. The promise to the future in terms of decentralized currencies is great and appealing to many. The accompanying blockchain technology, concretizes the digitization of products and rights with unprecedented concreteness.


Das Problem ist, dass technologisches Potenzial nicht mit der gegenwärtigen wirtschaftlichen Realität gleichzusetzten ist. Um auf die Kryptomärkte zurückzukommen, macht sich mit Blick auf die kurze Historie eine ernüchternde Erkenntnis breit, welche sich auf zwei Aspekte bezieht. 1) Der historische Kursverlauf von Kryptowährungen, ist oftmals nicht plausibel und rational erklärbar. Es gibt Kryptowährungen deren Wert sich anscheinend durch Tweets steuern lässt. Der Bitcoin ist bei der Verkündung von Verboten in manchen Ländern schon gestiegen, sowie auch schon gesunken. Bis heute gibt es trotz der Schar an Forschern und Theoretiker sowie der Prominenz des Themas kein Modell, welches den Kursverlauf von Kryptowährungen auch nur im Ansatz vorhersagen kann.


2) The industry is still in its infancy. This is shown by the scandals and the “bursting” of cryptocurrencies. The supposedly safe “stablecoin” Terra, which is supposed to be tied to the USD, was history within 2 days. In addition, there is still no regulation of the market. However, the MICA regulation of the EU for the regulation of this topic should come into force before the end of 2022. It cannot be ruled out that more cryptocurrencies will die as a result.


In summary, the question must be asked whether cryptocurrencies can actually already be classified as an asset class in their own right. The unpredictable total failures of individual coins are disproportionate to the rest of the market. The price development is idiosyncratic. Actually, there were good reasons to see Bitcoin as a protection against inflation, but this assessment was completely wrong. Thus, we have to soberly conclude that the suitability of cryptocurrencies as a serious asset class is still a long way off. It would not necessarily be advisable as an investor:to invest in an uncertain and unpredictable asset class due to uncertain times. Vienna-Life remains true to its old credo that precious metals are the right hedge for the time after the crisis.

To overview