According to Apollo Capital chief investment officer Henrik Andersson, the panic that has been seen across financial markets hit the crypto market, although he suggests the pain will be short-lived.
“Last Friday, crypto markets saw a large drop, this seems to have been exacerbated by liquidations of leveraged traders particularly on one exchange, BitMEX. When the dust had settled, it looks like around US$700M worth of positions had been liquidated on BitMEX alone,” Mr Andersson said.
Mr Andersson explained that crypto markets operate 24/7, meaning the market does not have a circuit breaker that traditional assets have.
“This is unlike traditional markets that halt trading during these kinds of events. This likely means that a true market/clearing price is found more effectively in crypto markets as they react quicker, always trade and never halt trading,” Mr Andersson said.
Despite being a traditional hedge, bitcoin was still impacted by the short-term volatility markets are facing.
“For investors looking for an equity portfolio hedge, we have a hard time to find other assets with upside potential outside of gold and crypto. Saying that, we do recognise that both gold and crypto have been terrible hedges so far in this environment but are less than one month since the peak in what has the potential to become a multiyear event,” Mr Andersson said.
However, the crypto specialist believes this will be short-lived, with investors experiencing stronger returns from hedge against traditional assets.
“As the stock markets around the world have panicked, we have seen a run on liquid assets that have performed relatively well. This includes gold and bitcoin. We saw the same pattern in the ’08 financial crises when gold initially sold off to meet margin calls before entering a multiyear bull market.”
“That was just before bitcoin was born. We believe bitcoin and crypto is a hedge against a monetary policy with unlimited money supply. Remember, bitcoin’s supply is cut come May – this is the exact opposite monetary policy of central banks,” Mr Andersson concluded.
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