Bitcoin & Co: establishment and consolidation phase (DekaBank)

Frankfurt ( – If you review the development of the crypto markets in recent weeks, you get the impression that after the long “Sturm und Drang” period, an establishment and consolidation phase has begun, according to the analysts at DekaBank.

They will mention several points as examples.

First, the US Securities and Exchange Commission (SEC), arguably the most powerful financial regulator in the world, is becoming increasingly vocal about the fact that many significant crypto assets fall under its purview and is increasingly trying to establish the facts. For a long time, the SEC was of the opinion that, due to their extremely decentralized structures, crypto-investments could not be considered securities in the true sense and were therefore not subject to SEC securities supervision. Recently, however, there have been increasing announcements and signals that the SEC is of the opinion that most crypto institutions will have to comply with the strict rules of the financial industry in the future, starting with anti-money laundering and insider information handling measures to compliance with the capital rules.
This change of heart was probably also due to the fact that – and this is also the second point – there was a far-reaching technical change in the second largest crypto vehicle Ethereum in mid-September, namely the shift in the consensus mechanism from “Proof of Work” to “Proof of Stake” . Although this conversion means a huge reduction in the energy consumption of individual transactions, it also significantly reduces the decentralization of the network. It is the price at which the massively reduced power consumption negates a strong counterargument against blockchain technology and against the use of cryptosystems based on it. The lower power consumption could favor increased use of blockchain technology – for example in the financial sector.

Finally, the third point of the arrival of the crypto world “on the basis of facts” is that there is now a visible wave of adjustments in the market. Examples of this are the insolvencies of crypto exchanges and exchange platforms, as well as the failure of a major “stablecoin”, where a purely algorithm-based security mechanism was supposed to guarantee a one-to-one exchange relationship with the US dollar. The two central market and economic issues of these times contributed significantly to the wave of adjustments: the significantly higher market interest rates would reduce the relative attractiveness of crypto-investments as an alternative to fixed-income investments, and they would make credit-financed investments by crypto-investors more expensive. In addition, the sometimes dramatically increased electricity prices worldwide would shake the business model of many crypto miners because the income would no longer compensate for the increased costs.

Bitcoin, the dinosaur of all crypto-assets, and with it most of its thousands of crypto-descendants, would have lost well over two-thirds of its value compared to the highest level in November 2021. This fact alone confirms the analysts of DekaBank in their assessment of the fact that investments in the crypto world are associated with an enormously high risk and are therefore not suitable for long-term and systematic asset building from today’s perspective. Moreover, they are highly speculative, perhaps best compared to the riskiest stocks in the tech sector.

For the analysts at DekaBank, it remains particularly exciting to see whether blockchain technology will lead to a wave of innovation, especially in the financial sector. The Ethereum innovations can play a significant role in this. (10/10/2022/ac/a/m)

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