Cryptocurrency’s Behavior During The Stock Decline

One of the advantages, cryptocurrency enthusiasts claim, was that digital currencies would behave differently than the stock and bond markets. Bitcoin, one of the most popular digital currencies promoted itself “as a stable means of exchange” (New York Times, May 12, 2022). It has not held true so far in 2022.

According to YCharts, on November 10, 2021, Bitcoin sold for $65,061. As of May 16, 2022, it sold for $31,319. A decline of 52%. That’s hardly stable. This decline is more substantial than the stock market.

Another digital currency, TerraUSD tanked. Stablecoins are supposed to be pegged to a stable asset such as the U.S. dollar. As it turns out, Terra USD was not backed by cash – rather it was backed by venture capital companies. According to the Wall Street Journal, May 17, TerraUSD was supposed to be worth $1 per coin. As of Monday, May 16 it was worth 11 cents.

As we mentioned in our April 12, 2021, newsletter, a call for regulation of digital currency is being made by many governments globally. The Federal Reserve issued its first white paper about the issues. Janet Yellen, Treasury Secretary, testifying before Congress said, “We really need a regulatory framework. In the last couple of days, we’ve had a real-life demonstration of the risks.”

Rather an understatement.