The fall of the cryptocurrency is a warning for Brazilian investors

who bets on cryptocurrency market in recent years knows that it will have to wait to recover the losses of recent months. Renato Siqueira, 43, a communication professional, started investing in this type of application during the Covid-19 pandemic. With the money he would spend on travel, he decided to buy riskier assets with higher return potential than fixed income securities.

Siqueira made small contributions over just over a year until he reached a total of R$23,000 invested in Bitcoin and Ethereum cryptocurrencies and other less popular crypto-assets. Noticing a downward trend at the end of last year, he decided to withdraw R$3,000 to travel and pay his bills, leaving the rest invested.

After a significant decline in the cryptocurrency market, the amount invested by Siqueira is currently just over R$10,000. Seeing the move, he then decided to convert a large portion of his cryptocurrencies into US dollar-linked assets to reinvest when the market bottoms out and looks for recovery.

“I don’t feel like I’ve lost any money. At least not now. I’m waiting for the best time to reinvest. My thinking on cryptocurrency is that the lower the better, because I can wait for it. I see it as an opportunity to make more money than at Tesouro Direto, but I don’t have all my assets in cryptocurrencies,” he says. “I believe the market for cryptocurrency can go up and that I have more money in the future.”

higher interest

Cryptocurrency is a type of currency, but fully digital, that does not depend on banks to confirm transactions. Moreover, it is not issued by any government.

The catalyst for the current cryptocurrency shock has been the recent release of the US Consumer Price Index (CPI), which jumped 8.6% year-on-year in May to its highest level since December. nineteen eighty one.

Rising prices in the United States have buried investors’ hopes that rising inflation in the country has peaked and renewed risks of stagflation – a period of sluggish economic growth combined with rising inflation.

More importantly for investors, the high inflation scenario has caused a shift in expectations regarding the plans of the Federal Reserve (Fed, the US central bank). The monetary authority was forced to abandon its commitment to raise rates by half a percentage point at every policy meeting and last week raised 0.75 points, the biggest increase in a policy meeting since 1994.

With that, the financial market is already estimating that the US base interest rate will peak above 4% pa in 2023, more than double the current range between 1.50% and 1.75%.

Caution for the investor

In an environment like this, entering a market as risky as cryptocurrencies requires even more knowledge and care, according to Luiz Pedro Andrade, crypto asset analyst at Nord Research, who recommends investing with an eye on the long term.

Andrade believes cryptocurrencies can give investors a return on investment in up to four years. However, one must be careful when investing, limiting investment in cryptocurrencies to a small percentage of the portfolio.

“We are in a bear market (crisis market) different from previous ones in the cryptocurrency market due to rising interest rates in the stronger economies,” he says. “Other than that, with the extended two-year bull cycle in the market, people have more capital allocated than they can sell.”

The analyst recommends investing in better-known cryptocurrencies, such as bitcoin, and allocating a very small part of the portfolio to these assets: “It’s not worth having more than 5% of the portfolio in cryptocurrencies, and beginners should only have 2%,” Andrade says.

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