With several cryptocurrencies currently plummeting to well below their record highs, a University of Guelph-Humber finance researcher says the selloff is due to crypto investors’ concerns over a looming recession.
Dr. George Bragues is associate vice-provost, academic, at the University of Guelph-Humber. He researches bond, currency and stock markets, including cryptocurrencies such as bitcoin. Bragues said many investors are leaving cryptocurrencies behind because the United States Federal Reserve is “tightening monetary policy in an attempt to quell escalating inflation.”
Cryptocurrency may have begun as an “anti-currency,” but for the past 18 months, it’s been viewed by many investors as akin to a growth stock, said Bragues, noting that cryptocurrency has correlated strongly with technology stocks over that period.
Once cryptocurrency entered the “mainstream,” it increasingly became treated as something that investors could use to enhance and further diversify their portfolios, Bragues said.
“When monetary policy tightens, especially after a period when interest rates have been quite low, growth stocks can be hit hard,” he said. “Because of its correlation to growth stocks, cryptocurrencies have been caught up in the same price decline.”
As well, for many investors it has become less likely federal governments can end inflation without causing a recession, said Bragues.
“Investors are increasingly factoring in a higher probability of a recession, and that is not good for growth stocks, which is the category where crypto is currently viewed.”
What happens next with cryptocurrency is something that has occurred with other new industries, he said.
“It will likely establish itself as an alternative currency space that will operate alongside traditional currencies, and it would not be surprising if we end up with a crypto universe with perhaps a dozen cryptocurrencies.”
Bragues recently appeared on CTV National News to discuss cryptocurrencies’ falling values. He is available for interviews.
Dr. George Bragues