The sharp but cyclical fall of the main crypto-asset has brought other virtual currencies in its wake. A tumble that can be explained as much by the nature of Bitcoin as by the tense global economic context.

There have already been historic plunges like in 2018 with -83% and phases of volatility exist with each Bitcoin cycle”, puts Romain Saguy, commercial director of Coinhouse, an exchange platform, into perspective. “There is each time a bubble effect followed by a “bear market”, that is to say a continuous downward trend since the peak in November”, he explains.

The domino effect of the fight against inflation
Bitcoin, for example, rose to more than 16,000 euros in December 2017 and then fell to 3,000 euros in 2019. But the global situation is changing the situation and amplifies the brutality of the fall. War in Ukraine, successive confinements in China or the tightening of monetary policy in the United States… The cryptocurrency market had never experienced such a wave of tremors with geopolitical and economic crises of global proportions. Bitcoin had all the more always been decorrelated – until 2020 – to fluctuations in traditional asset markets. Ironically, it is its adoption by Wall Street and financial institutions that also contributes to these vacillations.

Initiated by the American Central Bank to counter an inflation not seen in 30 years, the 0.5% increase in the key rate cooled investors on the stock market and prices stalled. With a ripple effect on cryptocurrencies and its banner. “Bitcoin has become a portfolio management instrument which is now correlated with stock market assets such as the Nasdaq, the market for technological assets and the riskiest”, points out Nathalie Janson, teacher-researcher in the Finance department at NEOMA Business School. “As it has been fed by the accommodative monetary policies, the Nasdaq is the index that corrects the most and therefore Bitcoin too”.

Second digital asset by its capitalization, Ethereum also suffered the blow but rebounded a little better than the other virtual currencies. “It is perceived, like Bitcoin, as a sound economic mechanism with real utility and the certainty that it will be there in 5 to 10 years” specifies Romain Saguy of Coinhouse. “The other cryptos must be considered as start-ups with uncertainties about their ability to survive,” warns the expert. “But anyone who has bought Bitcoin and kept it for three years has made a capital gain” he tries to reassure in these uncertain but not totally unknown times.