The era of “easy money” such as investment in bitcoin could be over as central banks start tapering off from bond buying and low-interest rates, a development that could come as bad news for crypto-currency traders and investors.
This is according to Professor Panos Mourdoukoutas, chairman of the Economics Department at LIU Post in New York, who wrote in an opinion piece for Forbes that technology stocks and bitcoin investments are likely to deflate.
Bitcoin prices have been on a roll, breaching the $7000 mark this year. In markets such as Zimbabwe, bitcoin prices are around $13000 owing to foreign currency shortages. The US Treasury’s 10-year yields have already edged to 2.50%. This would be stronger by a point over the past year yield and experts believe this could be a bad omen for bitcoin.
“That’s bad news for investors chasing bubble assets like Bitcoin and overvalued technology stocks, which are very likely to deflate, as was the case with dotcom stocks back in 2001,” Professor Mourdoukoutas said.
“With central banks tapering or ending their bond-buying programs – and with some raising short-term interest rates – the era of easy money is over,” he added.
Trade in bitcoin and prices for the crypto-currency has been firm, helping investors reap huge profits. But there are fears that “these investors could lose their millions faster than they made them” should the current “market momentum fade” and ultimately take a turn in the wrong direction.
Professor Mourdoukoutas explained that higher interest rates could put pressure on Bitcoin prices through raising the “opportunity cost,” of money used to buy Bitcoins. This especially applied to investors who buy Bitcoins on margin, with borrowed money. Higher interest rates could also put pressure on Bitcoin prices through restoring “credibility” to central banks and to national currencies they control.
“That will make alternative currencies like Bitcoin less appealing to the general public,” he added.
There is growing debate over the sustainability of the bitcoin price surge in recent weeks. Others say the cryptocurrency is sustainable to volatility despite the current surge.
Writing on Seeking Alpha last month, Truth Investor said: “If we look at Bitcoin in the context of other investment assets, it becomes harder to argue that Bitcoin’s price movement is unique. Equities, bonds, and real estate (especially in some regions) are all expensive.”
Although experts believe that nearly all asset classes are in a strong bull market, it is hard “to say definitively that Bitcoin is in a bubble despite the cryptocurrency space providing evidence of “irrational exuberance”.
This contrasts with the views of Mourdoukoutas who believes that bond yield tapering off will be a threat for bitcoin. Traders and investors will find anything that gives credence to a long-lasting bull run in the price and trade in bitcoin very interesting as it gives them room to make more money.
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Last modified: May 21, 2020 9:07 AM UTC