Hey folks, welcome to this Sunday’s newsletter that explores the world’s favourite topic - Cryptos.
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Bitcoin dropped to a six-month low on Saturday, extending a steep fall recorded in the previous session as the cryptocurrency market was swept up in a powerful shift by investors out of speculative assets. The price of the biggest digital token by market value fell 4.3 per cent in the European morning on Saturday to $35,127, the lowest level since July 2021. Bitcoin has now lost almost a quarter of its value this year.
With every bubble, comes a pop. While cryptocurrencies gained a lot of traction in 2020 and 2021, the new year hasn’t given much hope to crypto investors. Sure, there has been a lot of turbulence in global markets because of inflation and possible interest rate hikes, but cryptos were meant to act as a hedge to the two problems - and it doesn’t seem to be happening.
Most central banks view cryptocurrencies as a threat to their domestic currency, while a select few have adopted them as an official currency (El Salvador). Although nobody is discounting the underlying technology, the instability in crypto prices seems to unnerve central bankers.
The biggest argument behind the crypto vs cash discussion is that cash is always backed by gold, while cryptos are not. Most people aren’t aware of this, but there is a very prominent crypto that is backed by something tangible - Tether.
Tether is actually hosted on the Ethereum blockchain and is known as a stablecoin. It was originally designed to always be worth US $1, maintaining $1 in reserves for each tether issued. This makes Tether a lot less volatile and a lot less speculative - a major factor when there’s a currency crisis, especially in Turkey.
While Turks have long chosen to protect themselves against Lira volatility by keeping their savings in Dollars or Euros, data suggest that some of them are turning to “stablecoins”, which are pegged to hard currencies or other assets and act as a bridge between digital coins and national currencies. Some citizens also joke that the Lira is as unstable as a '“shitcoin” (Dogecoin, etc). CryptoCompare, a specialist data company, calculated that nearly TL211bn ($15.8bn) worth of bitcoin was traded last year, compared with just TL20bn in 2020.
Although the people of Turkey are running towards cryptos, the government has promised an all-out war against cryptocurrencies, which makes this currency crisis even more interesting.
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