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Easy come, easy go?
The recent sell-off of Bitcoin (BTC), Ether (ETH) and the majority of other cryptocurrencies came as a surprise even to investors who are accustomed to major fluctuations. There was actually nothing extraordinary about the drastic market dislocations after the rally that had lasted for months.
What is the outlook now?
In the short term it looks likely that the road will remain bumpy, with prices oscillating up and down over the next few weeks, perhaps even months. In the medium term we believe that the triggers of the recent price slump have highlighted two big challenges for crypto- currencies:
1. How can the consumption of energy in the use of cryptocurrencies (and other blockchains!) be rapidly and decisively reduced? A number of significant initiatives are being implemented in this respect, specifically by the switch from the proof-of- work to the proof-of-stake procedure, which will have the effect of reducing the amount of computing power required (and therefore energy consumption) without jeo- pardising the security of the blockchain. Furthermore, more attention is paid to the use of renewable energies.
2. What significance will cryptocurrencies retain in the long term once national cryptocurrencies (CBDCs) are available? Various projects have been launched in this area in a number of countries (China, Sweden, EU, and Switzerland). What will be crucial here is the way these are designed – in respect of anonymity of payment, but also whether they will be accessible to all or just to banks, and whether central banks will retain rights of intervention.
And this brings us to the long-term outlook. The more widespread and straightforward the use of cryptocurrencies and tokens becomes, the more relevant the respective project will become. But the route to a mature asset class and a realistic valuation of individual cryp- tocurrencies will have plenty of highs and lows to come. We will continue to see exagge- rations in both directions for the foreseeable future, which means the young asset class will continue to be severely tested.
Excerpt from our ad hoc market comment “Easy come, easy go?”:
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