Are cryptocurrencies a cyclical investment?

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Criptotendencia

Undoubtedly 2020 taught us something important about the economy, that no matter how strong it may seem, everything can collapse from one moment to another due to small or big changes, one of these changes was a worldwide quarantine where many companies went bankrupt and many small businesses in different countries around the world had to close because it was no longer sustainable because there were no customers to sell to. Large airline companies went bankrupt due to lack of customers and so did the hotel and restaurant industries.

But something that the changes that happened in 2020 also taught us is to look at profitable investments for example we have seen a big spike see profitability in cryptocurrencies, this mainly because of the collapse of the economy and the devaluation of Fiat money, which makes people look for stronger or safer assets to hedge against inflation. We can also add the fact that so many people are at home with a lot of free time gives them opportunities to research better ways to invest money and because large companies went bankrupt or were in the red they saw that buying shares of those companies was not a sure thing and rather looked at cryptocurrencies.

But sadly even after seeing that cryptocurrencies can change and help improve the world economy, there are skeptical people who want to keep control over the world's finances and constantly attack cryptocurrencies by highlighting over and over again their weaknesses, for example high volatility.

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Abc news

And among the main critics are skeptical analysts from JP Morgan Chase, who criticize cryptocurrencies and advise people not to risk their money by investing in them. They have recently said that cryptocurrencies are the poorest hedge for declines in stocks, arguing that the price of cryptocurrencies as bitcoin is highly inflated AND higher than the real value, furthermore they have said that they are simply an economic show.

They have also made mention that the big boom with cryptocurrencies right now where you can see massive adoption makes them a cyclical asset because they are just following a general trend in a given economic cycle. But is this true, and what evidence do we have that cryptocurrencies are not a cyclical asset?

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Black sean finances

But before answering these two questions, let's know the complete definition of what is a cyclical asset and a countercyclical asset:

Cyclical asset: is defined to all those products and services of some companies or Investments, which when things are going well and the tone of the economy shows signs of strength or growth, increases significantly. But when things go wrong, consumers of these products and services postpone their purchase decision, lower consumption or simply do without it, because they are things that are not so important and can pass them temporarily.

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Periódico viaje

Examples of cyclical or consumer cyclical stocks are tourism companies: hotels, airlines, restaurants. Financial sector companies, such as banks, issuers of means of payment, consumer finance or insurance companies. Companies related to the automotive sector. These are businesses that are closely linked to the economic cycle and suffer when there is a recession, but are the ones that benefit most from periods of economic expansion.

Anti-cyclical assets: these are the ones that perform well in any economic scenario as they are indispensable assets, products or investments at any time of our lives, therefore when things get economically worse these anti-cyclical assets maintain their streak or see an upward rebound.

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Patagonia 24

The most notable examples of countercyclical assets we are seeing right now during this whole pandemic, for example Although it is unlikely to take a vacation in a paradise because it is not a priority in your life, food, internet, mobile telephony, domestic gas, electricity, heating, water, gasoline, etc. are very indispensable. Because we are seeing that in full pandemic these assets and services have become an important part of our life while renting a reservation in a hotel is not, that is why the countercyclical assets survive in any economic situation and in some cases their value increases and when things are normal their value and demand remains constant.

Now knowing the definitions of cyclical and countercyclical assets, can we say that cryptocurrencies are cyclical assets?

To answer this let's look at many recent evidence that we have had for example the great interest by large companies or investment funds to use cryptocurrencies as protection against the devaluation of Fiat currencies How tesla, microstrategy and grayscale among others, we can also mention the widespread adoption of blockchain in various aspects such as medicine, the development of decentralized applications, data storage, among other uses. The massive explosion of applications and practical uses of blockchain technology in the real economy for example the markets of non fungible tokens or collectible NFT that lately have had sales that exceed all forecasts and finally the great performance in relation to prices that are having lately as the bitcoin that achieved an all-time high of $56K a few hours ago and a market capitalization that exceeded a trillion dollars.

And the truth is that there is still a lot of ground to explore to further develop and find the benefits of cryptocurrencies in our daily lives, so we can safely say that cryptocurrencies and therefore the blockchain are not cyclical assets because now we are increasingly depending on them for different uses and applications, in the same way as we depend on electricity and the internet.

And even though they initially started out as cyclical assets and depended on economic prosperity, we are seeing unprecedented changes. That is why the statements issued by JP Morgan Chase analysts are wrong and based on outdated fundamentals because blockchain and cryptocurrencies and their applications in the real economy are changing at an unprecedented pace, hence the importance of doing DYOR before issuing an opinion that may negatively affect.

But do you believe that cryptocurrencies and blockchain are cyclical or countercyclical assets?


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While there are certainly cycles in crypto, I wouldn't consider it a cyclical asset. The tech continues to develop at a rapid pace and, at this point, I think it's just one big cycle of development to the upside. There will be periods of ups and downs, but the overall trend is up and I think that will continue for probably at least the next decade.

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