A crypto "ice age" might be coming as the Fed slashes its support for markets and the economy.
Crypto prices have slumped, with bitcoin tumbling to a six-month low below $38,000 on Friday.
With the Fed hiking interest rates, and nagging questions about regulation and the technology, the outlook could be bleak.
Things are getting cold in crypto-land. Bitcoin is down dramatically from its November peak of close to $69,000, falling to a six-month low below $38,000 Friday. Trading volumes have slumped.
Some investors are concerned that the market is going into a "crypto winter" — a period when prices fall sharply and fail to recover for more than a year — as the
Federal Reserve
abruptly tightens monetary policy.
But it could be worse than that. Crypto could in fact be heading for an "ice age," where prices stay low for years and many investors lose interest, Paul Jackson, Invesco's global head of asset allocation research, told Insider recently.
It's not just Fed policy. Many potential investors have niggling doubts about the robustness of cryptocurrency technology, and regulation that could stifle industry development.
The Fed could put crypto in the deep freeze
Early last year, "Bond King" Jeff Gundlach said he thought bitcoin was "the stimulus asset" boosted the most by the "torrent" of money from the Fed and US government during the coronavirus crisis.
But less than a year later, the Fed is turning off its faucet as it tackles soaring inflation. Markets are now expecting four interest rate hikes in 2022.
The resultant jump in bond yields has already whacked unprofitable tech stocks and cryptocurrencies. The two speculative assets look a lot less attractive when returns on risk-free bonds are higher.
But more pain is likely, as bond yields have considerably further to rise, according to Invesco's Jackson.
"Central banks and governments have played a role in jacking up these markets, and as those policies reverse, then I think they will have a role in depressing them," he said.
Markets.Businessinsider
