Beaten-Down Crypto-Investors Might Retreat To "Safer" Investments

Bitcoin tumbled over 10% on Monday, its biggest one-day drop in over a month. The selloff was sparked by the People's Bank of China (PBOC) urging the largest banks and payment companies in China to crack down harder on cryptocurrency trading.

The China State Council said last month that it would tighten restrictions on bitcoin producers as well as traders. The crackdown on miners will likely hit prices in the short-term, according to market players.

"We are definitely in the midst of a correction" Anthony Wong from Hong Kong-based crypto firm Orichal Partners by Reuters

The cryptocurrency has declined by almost half from its peak in April of nearly $65,000. Year to date, it remains up about 2%, but losses of nearly 30% wiped out almost all gains for the past year.

Growth Roars Back

Many of the companies associated with the “reopening” trade slowed down in early May as investors seem to be rethinking their strategy and head back to technology plays.

“The value trade is unwinding and the growth bulls are winning” Alec Young, Chief Investment Officer of Tactical Alpha by CNBC

The narrative of the market is changing. The storyline for the first quarter was that the re-opening would sustain itself, bond yields would increase and inflation will force the Fed to increase rates.

This was only partly right. The reopening has been strong, but bond yields have come down as investors have come to believe that inflation and supply chain issues will be “transitory” and that the second and third quarters will mark the top in earnings and economic growth.

BENCHMARK’S TAKE

  • Value oriented stocks may experience a weaker environment as inflation fears recede
  • Crypto-currencies may also come under pressure after a year-long run as China goes out of its way to reign in speculative investments and debt-levels
  • Growth stocks might then benefit from large the outflows from value stocks and crypto-currencies
  • However, this “speculative money” might chase retail favorites and highly-shorted stocks first

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Bermix Studio on Unsplash.