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Outlook for Bitcoin, stablecoins remains promising
By Lee Min-hyung
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| Peter Chung, head of research at Korbit |
The global crypto market enjoyed its heyday in 2021 on a trading frenzy driven by substantial liquidity. But the sentiment took an abrupt turn for the worse at the start of 2022 on escalating fears of global monetary tightening.
Bitcoin prices fell below $20,000 (25.7 million won) for the first time in 18 months in June. The short-term outlook remains cloudy on the crypto and stock markets here and abroad, as the U.S. Fed and major central banks across the globe warn of more aggressive monetary tightening to tame soaring inflation.
Peter Chung, head of research at Korbit, however, shared an optimistic view on the possible rebound of the crypto market, saying that the industry will reach a major inflection point when investors expect global monetary authorities to slow down the pace of their monetary tightening.
"The crypto market will bounce back when a growing number of market participants start expecting monetary authorities to adopt less hawkish policies," Chung told The Korea Times during the interview on June 28.
He joined the crypto exchange in September 2018 and has led the firm's research center since November 2021. Korbit is the nation's first crypto exchange operator to have established an institutional-grade in-house research team. Chung studied finance at the University of Pennsylvania, and worked for more than a decade at global investment banks in Hong Kong such as Goldman Sachs, Credit Suisse and Nomura before joining Korbit.
Starting this year, the global asset market entered a period of adjustment, with most assets, including cryptocurrencies, stocks and real estate, failing to extend their robust rallies that have lasted for the past two years following the outbreak of the COVID-19 pandemic in early 2020.
After the Fed started its widely-expected rate hike in March, the years-long trading frenzy came to a rapid end. With the U.S. monetary authority carrying out a giant rate hike of 75 basis point at one time in mid-June, investors' fear sentiment appears to show no signs of abating.
But the crypto expert underscored that the possible rebound of the market might come faster than expected.
"As the market has already forecast the global monetary tightening, cryptocurrencies will gain momentum for a rebound even before inflation comes under control," Chung said. "It is hard to predict its timeline, but when the time comes, possibly as early as the latter half of this year, cryptocurrencies will achieve a more powerful rally than stocks."
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| Seen above is a real-time price chart of Bitcoin for the past month until June 29 when its price fell below $20,000 at one time. Courtesy of CoinMarketCap |
Vigilance against blind optimism
He advised investors to stay away from a blind optimism on cryptocurrencies and keep learning more about the industry if they want to achieve more successful investment returns.
"The future of Bitcoin is bright from a mid- to long-term viewpoint," he said. "Ethereum, however, has competitors and requires constant system upgrades and changes, so it is riskier than Bitcoin. But its attempt as an operating system for decentralized applications is meaningful in itself, and the cryptocurrency is still a frontrunner in the area, so it is worth investment."
He added that cryptocurrency investors should focus more on improving their understanding of the industry, so they can continue their investment activities and generate better returns.
Terra fiasco and outlook for stablecoins
He also mentioned the recent crypto fiasco surrounding the abrupt collapse of the Terra-Luna ecosystem. In mid-May, Terra's flagship stablecoin UST dropped its intended $1 peg, resulting in the collapse of its sister token Luna as well.
The controversy made global headlines, as Luna was once considered one of the world's most promising cryptocurrencies. But it took less than a week for the Terra ecosystem to collapse, with the two coins' valuation tumbling to near zero.
Terraform Labs, the developer of the ecosystem, has since launched its updated Terra 2.0 project, as part of efforts to compensate Luna investors. The rebranded Luna was traded at around $18 right after its market debut, but its valuation has since sharply declined to $2 as of Tuesday.
But Chung said Terraform Labs' decision to issue the new coin was still praiseworthy.
"My view is that the decision was the maximum effort that the company could make for investors suffering losses," he said. "We cannot come to an abrupt conclusion that the Luna 2.0 price fall has been caused by the ongoing crypto bear market or the problem of the new Terra ecosystem."
Despite the latest debacle, Chung voiced optimism for the global stablecoin market.
"The whole stablecoin market is forecast to keep growing down the road," he said. "Chances are extremely small that Tether and USDC, the world's two most valuable stablecoins, will collapse. Most of the distrust of stablecoins is directed at algorithmic stablecoins (such as UST)."
Tether and USDC are considered to be more stable than algorithmic stablecoins, as the former are fully collateralized, which means they are backed by cash or cash-equivalent assets.
"It looks tough for algorithmic stablecoins to regain trust from investors in a short period of time, but this is not the case for collateralized stablecoins," he said. "More capital has flown into USDC due to its stability even after the collapse of UST. The market for collateralized stablecoins will keep growing from a mid- to longer-term viewpoint."
