Bitcoin and its sisters are facing a free fall in their value..Is it an investment opportunity?
The free fall of digital currencies last weekend caused a state of anxiety among investors, after the “Bitcoin” lost 21% of its value last Saturday, before it began a faltering journey to recovery and hovered around 50 thousand dollars.
The cryptocurrency market lost about $500 billion during the end of last week, after the price of Bitcoin fell to low levels at $47,500, after it had jumped above $68,000 last November, which was reflected on the rest of the other currencies, including currencies. “Ethereum”, “Cardano” and “Solana” are all currencies considered the largest in the world.
This rapid and unjustified collapse of cryptocurrency prices opened many questions about the logic in which these currencies operate, and the size of the risks of investing in this market, which is still considered a great mystery for many.
Al Jazeera Net posed these questions to Dr. Nihad Ismail, professor of economics and financial risks, and Dr. Nabil Adel, financial advisor to a number of international insurance institutions, in order to understand the reasons for this decline, and expectations about the future of these currencies.
What is the logic behind digital currencies?
Dr. Nabil Adel believes that digital currencies are subject to the logic of the market in supply and demand, and also their value is linked to the expectations of investors for the ability of these currencies to grow.
He added that what makes dealing with these currencies complicated is the rule that a person is an enemy of what he does not know, because investors do not know how to deal with these currencies and therefore the reaction to any shock is violent, either leading to an unprecedented rise or a sharp collapse.
Is this decline caused by the emergence of the Corona mutant “Omicorn”?
At this point, the analysis of Nihad Ismail and Nabil Adel differs. For Dr. Nihad, the day of the announcement of the discovery of this mutant was a “black day” for the global economy and because of it stocks collapsed and there was a sudden wave of selling of shares and the bitcoin currency, because the market logic in crises is to sell and then ask questions.
He added that this decline is also linked to the energy crisis and the supply lines, because digital currency mining needs a huge amount of electrical energy in light of the energy crisis that the world is experiencing.
On the other hand, Dr. Nabil Adel believes that Corona has nothing to do with this collapse, because the cryptocurrency market flourished during the epidemic period, and whenever there are fears of a new closure, people resort to digital currencies because they are easier to deal and trade.
What are the reasons for this decline?
Dr. Nabil Adel believes that this sharp collapse is due to investors entering into major speculations about these currencies and neglecting their true value as long as profits continue to rise.
This situation leads to an illogical rise in the value of these currencies, until the mass of investments reaches a conviction that the rise is unjustified and illogical, and at that moment, any simple event leads to destabilizing the value of these currencies, like a strongly inflated balloon, any simple friction leads to its explosion, This is what happened this time, because everyone warned against the inflation of the value of many digital currencies without any justification, and as soon as a slight decline in the value of Bitcoin, the whole market began to collapse and decline.
How big is the risk of investing in digital currencies?
Nihad Ismail distinguishes between two types of security and economic risks, as all transactions of these currencies are carried out on digital platforms with a high degree of confidentiality and security, but in the event that an investor’s account is hacked, there is no mechanism to recover your money in advance, for example, the British Financial Conduct Authority, which Refuse to deal with these cases.
As for the economic risks, they are manifested in the fact that these digital currencies cannot be described as the real economy, and they are volatile and unsecured, and there is no official authority or body that can be appealed to to regulate transactions in them, and therefore whoever invests in them must be prepared for huge losses as he can reap profits Great because there is no logic in explaining the behavior of these currencies.
Is this a golden opportunity to invest in these currencies?
Nabil Adel recounts the difficulty of predicting and predicting the behavior of the digital currency market during the next month or even next week, but he believes that the speed of technological development, the volume of trading in these currencies, and the joining of major companies to deal in these currencies, indicates that their prices in the long run will continue to rise, Short-term fluctuations are common in financial markets.
Why do not the central banks intervene on the line?
Nabil Adel explains that central banks did not intervene to regulate the digital currency market for more than one reason, the first of which is that these banks are neither organizationally nor technically equipped for this matter, in addition to the fact that central banks were established in order to control banknotes and coins and monitor the work of banks and their logic is centralization in the financial decision.
On the other hand, the digital currency market is decentralized, and the stages of manufacturing these currencies are still unclear, while the central bank must have the powers to track all stages of currency issuance, so central banks still deal with these currencies very cautiously. .
As for Nihad Ismail, he points out that there is also apprehension because these currencies are now used to demand ransom during penetration operations, and there are currencies suspected of being used for illegal trade and money laundering, all of which require a lot of time and techniques to investigate and scrutinize them.