The Covid-19 pandemic has hastened the global acceptance of digital currencies such as Bitcoin and the underlying blockchain technologies that fuels them. While the volatility of various cryptocurrencies including Bitcoin continues, the currency has hit hard to its lowest point in the past couple of days in this month and earlier. The crypto performance driven factors seem to loosen up during this phase. The investors are however, optimistic that the cryptocurrencies will regain momentum as the world slowly returns to its normalcy.
The blockchain sector has attracted around $12.4 billion in U.S-based companies’ venture investments since 2017. It has also attracted $19.4 billion globally. What is shocking is that the data is far more for 2021 where it shows that dollars were nearly 3x from the past year for both U.S. and global investments. Additionally, the sector has also faced continuous opportunities and challenges including more broad adoption and the new regulatory pressure from the global governments.
How The Crypto Performance Driven Factors Contributing To The Latest Market Graph
Crypto performances have been widely tracked since people not only invest in them but widely trade globally. Cryptocurrency being a volatile asset has a huge contribution to the market graph pattern. Here we have Barry Ritholtz (Ritholtz Wealth Management Founder) who speaks about the crypto performance driven factors and how they will continue to have an impact in the crypto market future.
“Crypto Traces back To Financial Crisis” – Barry Ritholtz
Interviewer: Right now the persuasion elements the influence elements of the battle over Bitcoin and the shock of 45,000.
Barry Ritholtz: So, there are two broad types of influence on people. I think and if you want to put it in economic terms, it’s really the micro and the macro. Cialdini’s focus was really on one-on-one individuals whether it was sales or corporate relationships or whatever its persona; relationship. That sort of influence, those sorts of persuasion is where he focussed his work on and for sure there is a lot of that going on in the crypto space. The broader approach is really the one taken by Bob Schiller of yale who focus on narratives and how these storylines can influence not person by person but entire crowd all at once and I think what we are seeing with crypto especially given Elon Musk’s most recent announcement is a combination of both the story driving the entire crowd. But the people who feel like Elon is speaking directly to them. That’s more of the Cialdini persuasion approach.
Interviewer: What’s so interesting here Barry is the uproar now positive or negative whether you believe in Bitcoin or not and all that doesn’t speak to the institutional structure of Bitcoin. Do you have an understanding of the institutional underpinnings of Bitcoin?
Barry Ritholtz: Of how it is produced or how large and…
Interviewer: How it is produced. How it’s the bid and ban the marshallian cross of Bitcoin.
Barry Ritholtz: Well, you know a lot of this traces back to the financial crisis where we saw a monetary but not a fiscal response to try and save the economy that just poured fuel on the fire to all sorts of concerns about income and wealth inequality as well as “fiat currency” and it is not a surprise that a lot of people who were deeply deeply frustrated by how the economy was saved not why it was saved. But the methodology used got frustrated with the central banks and centrally planned economies even in ostensibly capitalist countries and this is sort of a way or this is a liberatarian way to step back and say let’s allow the marketplace to determine the value of a currency hold aside the fact that the marketplace does that with fx obviously. But the idea that no one government can control something was really that’s the narrative that drove the early adopters into Bitcoin.
Interviewer: Barry there is a larger question here too which is how much the backdrop has really changed right now as we head into the next economic cycle. I mean Joe Weisenthal was talking overnight about how this for the first time feels like perhaps we really are getting a change a fundamental change in the economy with perhaps a higher inflationary kind of tilt. I mean do you think that is valid as somebody who invests in index funds who’s somebody who invests more broadly in the markets that we are entering a new regime where there is a new paradigm ruling.
Barry Ritholtz: So first I have to begin by pointing out that we have seen a decades worth of longer 12 years worth of forecasts of inflation and hyperinflation and currency depreciation and they have been nothing but wrong because they completely misunderstood the output gap both in employment and production and that you don’t get inflation when you merely have low rates and you don’t get inflation when you merely have some fiscal stimulus. So, they have been wrong. I was just reading a piece I don’t want to name-shame anybody but from August 2009, warning about here comes inflation and the Fed is doing it and it really reflects a fundamental misunderstanding of how the economy works. One day we will have inflation. One day we will have wage pressure. But to get to that we need a whole lot of things to happen besides zero interest rates and a few trillion in fiscal stimulus. You need to be pretty close to full employment. You need pretty close to a big ramp up, in well, PDP production and you start to need a shortage of assets. Not a handful of houses in the Hamptons or Palm Beach because there are only so many and we are supply constrained. You really need demand far exceeding supply and we are years away from that. So, the short answer is no I am not worried about inflation in 2021. We could talk in 2022 and 2023.
Cryptocurrencies do not just exist as digital currencies or digital assets. They have a lot of value in the cryptocurrency market. The crypto performance driven factors help to determine the current position of the market graph. This further helps the inventors and speculators to decide whether a currency will be good at that moment for investment and how they will perform in the future. Thus, it needs to be stated that the factors that drive the digital currency performance and hence the crypto market are as important as the cryptocurrency risk factors are similar to that of the stock markets. Also, the returns of cryptocurrency are lucrative.