What’s happening with cryptocurrencies?
This article is written by Nikola Vasiljevic, Barclays Private Bank.
Please note: Reference to specific companies in this article is not an opinion as to their present or future value and should not be considered an investment recommendation, investment advice or a personal recommendation.
Cryptocurrencies have seen their value plummet in recent weeks, generating dramatic media headlines in the process. As retail investors around the world are left dealing with the fallout, many are now wondering if the bubble has burst. Or is this merely a short-term blip?
What we know so far
Bitcoin, the largest and most well-known of them all, broke an important technical support when it traded below $20,000 (Bloomberg, 18 June 2022). That valuation was its previous cycle’s all-time high, and the level hadn’t been breached since late 2020 (Bloomberg, 18 June 2022).
More broadly, the sharp drawdowns in ‘cryptos’ have had cascading effects on the entire blockchain universe. Last week alone, a leading crypto lending platform halted withdrawals, while a prominent crypto hedge fund appeared to be facing insolvency.
A ripple effect
Outside of blockchain and the crypto world, the stress in digital currencies is having real macroeconomic repercussions for two core reasons:
- First, while cryptos are relatively small on their own ($2.9 trillion at the peak in November 20211), hundreds of billions in unrealised gains have been lost in the process. When combined with the ongoing weakness in more traditional stocks and bonds, the negative wealth effect is significant.
- Second, virtual losses have translated into real job losses. Last week, crypto exchange Coinbase announced its plans to lay off 18% of its workforce (around 1,100 employees) in 2Q22 citing the economic downturn2. In fact, tens of thousands of jobs could be cut across the industry in the coming months as a result of the crypto crash. At the margin, crypto-driven wealth and job destruction will likely weigh on consumers’ willingness and ability to spend, putting additional pressure on the global economy. That being said, in our opinion, this is far from a systemic issue.
Cryptocurrencies are unsuitable for private client portfolios, for reasons including (but not limited to) a lack of global regulation, and a high degree of unpredictability. Even professional investors need to stay cognisant of the fact that any crypto holdings in today’s environment will invariably be subject to large volatility swings, and significant drawdowns.
Current events reinforce the need for caution but that’s not to say things won’t change in the future. Blockchain and the technology underpinning digital currencies, have longer-term potential but a number of issues need to be addressed. It’s an area we continue to monitor closely.
In the meantime, we recently shared our thoughts on the other digital asset generating a lot of hype at the moment – NFTs. You can read all about them in this article, or you can listen to our recent podcast on the subject.
This communication is general in nature and provided for information/educational purposes only. It does not take into account any specific investment objectives, the financial situation or particular needs of any particular person. It not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful for them to access.
This communication has been prepared by Barclays Private Bank (Barclays) and references to Barclays includes any entity within the Barclays group of companies.
- is not research nor a product of the Barclays Research department. Any views expressed in these materials may differ from those of the Barclays Research department. All opinions and estimates are given as of the date of the materials and are subject to change. Barclays is not obliged to inform recipients of these materials of any change to such opinions or estimates;
- is not an offer, an invitation or a recommendation to enter into any product or service and does not constitute a solicitation to buy or sell securities, investment advice or a personal recommendation;
- is confidential and no part may be reproduced, distributed or transmitted without the prior written permission of Barclays; and
- has not been reviewed or approved by any regulatory authority.
Any past or simulated past performance including back-testing, modelling or scenario analysis, or future projections contained in this communication is no indication as to future performance. No representation is made as to the accuracy of the assumptions made in this communication, or completeness of, any modelling, scenario analysis or back-testing. The value of any investment may also fluctuate as a result of market changes.
Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.
Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation.