What future for Crypto?

By Marius-Cristian Frunza
Weekly Briefs

Bitcoin price lost half of its value since April. Chinese authorities started an unprecedented crackdown against domestic Bitcoin miners, which accounted in 2020 for around 65% of global Bitcoin production. In addition, regulators are hindering the activities of crypto exchanges. So what does the future hold for Bitcoin and Co?

Each time the leading cryptocurrency undergoes a significant price contraction, the voices of its detractors are heard louder. Bitcoin is a scam; its investors have far-right views, crypto-currencies are non-productive assets... Despite this image painted in dark colours, Bitcoin price has held its ground above the 30,000 USD mark. With a value six times higher than its pre-COVID level, Bitcoin has become a competitive alternative investment.

While cryptocurrencies have many challenges to face and several hurdles to cross, the world of fiat currencies is far from being more stable. Central banks’ narrative depicts the current inflation as transitory, thereby implying that a deflationary period will occur in the near future. Such bets are as risky as predicting the weather in Normandy. What if the hyper-inflation is persistent?

The uncertainty generated by quantitative easing is the crucial driver fuelling optimism in the crypto-universe. Nevertheless, quantitative easing is a double-edged sword for Bitcoin. So what are the foreseeable scenarios?

On the one hand, if the enormous amount of money printed throughout the pandemic becomes an unmanageable “tsunami”, Bitcoin will grow. Under such a scenario, regulators and governments may need to temper down their urges against crypto.

On the other hand, if the money printing strategy is successful and by some unexplained factor, the global economy avoids a 1929 style crisis, central banks may transform their fiat currencies into digital/cryptocurrencies. For example, we have already heard about various initiatives of the European Central Bank to introduce a “digital euro”. Under such a scenario, Bitcoin will be cannibalised by the leading currencies.

There is one common point for both scenarios. Inequalities and wealth concentration will increase. This is because structural adjustments based upon financial market levies are rarely leading to more equity.

The government wants to fool its people by doubling the minimum wage but at the same time printing more than enough money into circulation. We can't solve problems by creating more problem for generations to come, which is why Bitcoin and some other decentralised finance applications powered by blockchain technology looks to be our only hope of creating a better future. Olawale Daniel, Canadian entrepreneur

Market overview

VIX, the leading volatility index, climbed on Monday above 24% in a turbulent market. The leading US stock indices plunged more than 2%, as new COVID-19 infections soared in the UK, several Asian countries and Southern US states. Investors dumped the shares considered to be less resilient in a context of slower recovery. The market rebounded the day after, and the Dow Jones ended the week above the 35,000 mark. The weak US employment numbers did not have a significant impact on the stock market. The Labor Department announced an unforeseen increase of jobless claims to 419,000, from a pandemic low of  368,000 the previous week.

Focus:

Biogen

The Massachusetts-based biotech company developed an Alzheimer drug called Ahulem, which received full FDA approval on the 4th of June. Biogen stock climbed by over 60% before starting a steep descent amid a massive scandal. Many experts were against FDA’s clearance for the drug priced at 56,000 USD, arguing that the clinical tests did not show benefits for patients.

This story may unravel further developments about how the drug went to the market, thereby adding foreseeable liabilities to Biogen’s balance sheet.

Focus:

UiPath

After a fulminant listing on the New York stock exchange, the Romanian-American unicorn specialised in robotic process automation is losing momentum on the market. While the 2021 quarterly reports show an increase in revenue,  UiPath struggles to become profitable. Despite its valuation well above 30 billion USD, the tech giant has an estimated negative cash flow of cc 80 million USD per year. Many other tech firms needed several years before reaching the break-even point.  Some prominent investors pulled out in June because they believed UiPath would see its market share contracting significantly due to new competitors jumping into the arena. UiPath’s future relies upon the soundness of its long-term strategy, and its management took already significant steps in diversifying its portfolio of products by acquiring promising European startups.

Focus:

Amazon

Many investors believe Amazon’s stock has nothing more to say. Bezos’s jump into outer space sends a strong message that the Bellevue-based tech giant has not yet said its last word. Overall, tech stocks are more attractive than ever, especially if the recovery of the real economy shows signs of slowing down. Since the pandemic outbreak, investors have rushed to pour money thoughtlessly into the stock market. Needless to say that the investing frenzy will end, and investors will rebalance their portfolios, reallocating funds towards safe stocks, like Amazon.

Market outlook

As predicted, the Dow Jones Index dipped earlier last week but managed to make a comeback in the last trading session and reach the 35,000 mark. US employment figures start to exhibit weakness in the economic recovery. A down to earth conclusion about the depth of the recovery can be made in September, when most US governmental COVID support packs will reach an end. The perspective of non-transitory inflation and a new wave of coronavirus infections could put investors in a risky spot.

Bitcoin’s price soared above 32,000, holding its central tendency above the psychological 30,000 USD level.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.