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According to Joe Weisenthal and Tracy Alloway, in their analysis published after the sharp drop in Bitcoin (BTC), “the current situation is ‘the coldest crypto winter of all time”. Paraphrasingr ’It is.
Bitcoin is down around four per cent since its peak in October, analysts said, and many other crypto assets have suffered much more losses. While larger pullbacks have been spotted in the past, it is one of the most psychologically difficult periods due to the timing of this current decline and the structural problems associated with its development.
But the most important thing that makes this decline is it’s a time of growing uncertainty about what the future of the dollar will be, Weisenthal said. While such macroeconomic stress environments are historically expected to provide a favorable environment for Bitcoin, investors should be again choosing gold. In a conjuncture where confidence in fiat currencies is being challenged, the fact that Bitcoin has not been strong even at this point of time undermines its “digital safe haven” thesis.
The analysis also showed that the crypto market has shifted away from the “early-stage” narrative. Although Bitcoin and other large crypto assets have been fully mainstream due to the proliferation of ETFs and increased institutional access, price performance has not surpassed expectations for high-quality Crypto products. Despite increased institutional adoption, the paradox of this was that there is no significant value appreciation for existing token holders such as ETH or SOL.
It was emphasized on the regulatory front that “the past story of “repressive regulation” has transitioned into a crypto-friendly political climate.” But analysts say that this positive policy environment is no longer enough to support prices. Meanwhile, the rise of the artificial intelligence industry is swaying investor interest and technical talent pool away from the crypto ecosystem as well as investors. However, it is stated that Bitcoin mining is ‘difficult to compete with AI data centers — particularly in terms of energy and infrastructure. The long term threat to network security could be exacerbated by this situation, such as .
The advancements in quantum computing are another security threat to Bitcoin’s security. The debates have been revived over the threat that developments in quantum technology could be a risk to the current cryptographic infrastructure as longtime Bitcoin investor Nic Carter has also noted.
However, Tracy Alloway’s analysis goes beyond crypto market to focus on the sharp sell-off in technology and software industries. She calls the iShares Expanded Tech-Software ETF a “SaaSpocalypse” in what she describes as ‘An annual loss of 22%’ and sharp losses seen by major fund managers are raising concerns about credit markets. It is the most important risk, according to Alloway, that the large credit exposure to software companies will “transform” into the financial system through private loan funds (BDCs), CLOs and indirectly via banking system.
The software sector’s credit risk has become particularly sensitive since 2020 as loans granted at peak valuations have led to a “high-risk” approach, analysts note. Increasing the risk of default could be increased by the pressure on software companies from AI-driven transformations. Specifically, the rapid downgrading of ratings and delays in credit rating processes could increase market fragility.
*This is not investment advice.
Thanks for reading Bloomberg Analysts Discuss Bitcoin and Altcoin Declines: “The Coldest Crypto Winter in History” – They Explain 10 Reasons Why
