Bitcoin’s price is currently at $20,108.16. This represents a change in -0.59% over 24 hours as of 2:38 AM. 30Th June East African Time. The crypto market is currently experiencing poor days, with prices trading at their lowest level since December 2020.
Deutsche Bank (DB), which issued its Wednesday report in connection to these events, stated that the cryptocurrency market’s free fall could continue due the complexity of its system.
Deutsche Bank first stated that the stability of crypto currencies is difficult due to high fragmentation in the market and also because there are not common valuation models, such as those used in investment banking systems or public equity.
The bank also stated that speculative transactions are more likely to involve multiple coins at once, which can increase spillover effects.
Liquidity The bank stated that although there might be some liquidity in these markets, it could quickly disappear, further diminishing confidence in prices, and increasing contagion effects.
Macro Effects
Speculative, high-risk assets like cryptocurrencies have been “disproportionately affected by central bank tightening, the report stated.
Deutsche Bank stated that the U.S. Federal Reserve (US Federal Reserve) and other central banks, including the European Central Bank (ECB), Bank of Japan (BOJ), are not yet finished with their tightening cycle.
These macro factors are amplified in the U.S. by investor pessimism and a looming recession, which can have a negative impact on speculative investments. According to the bank, any macro-shock would cause cryptocurrency trade to drop and increase contagion risks within the DeFi ecosystem.
The bank’s economists predict a U.S. recession in 2023 and peak inflation to hit 9.1% in September – the highest rate in 40 years amid the soaring cost of food and energy prices continue to deepen the nation’s cost of living crisis.
Unless Bitcoin is becoming “digital oil” its performance would be low during a period of high inflation, the bank mentioned.
The bank further noted that cryptocurrencies have been increasingly correlated with the Nasdaq and the S&P 500 stock indexes in recent months.
Based on the past correlation with the S&P 500 and using a baseline S&P 500 price of 4,750, Deutsche Bank said Bitcoin could reach $28,000 by the end of this year. Although this is a 32% rise from current levels, it’s still less than half the amount seen at its peak last November.
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