When the pandemic first struck, crypto investors feverishly began reducing overall risk across their asset portfolio.
This sentiment has since changed, and with it the has the tone of a chief economic advisor who previously told investors to “buckle” up, and prepare for the worst. The increase in risk-on interest may help the high-risk asset class of cryptocurrencies stage a long-overdue comeback.
Chief Economic Adviser Optimistic Over Return Of Risk-On Tone
Fearing the unknown and uncertain about the future impact lockdown conditions would have on the economy, an investor mad dash to sell anything and everything resulted in a liquidity crisis now known as Black Thursday.
The massive selloff crushed the stock market and even precious metals gold, silver, palladium and more. The continued economic constraints also fueled a severe drop into negative territory in the oil market.
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High risk, illiquid crypto assets like Bitcoin, Ethereum, and many others, were decimated in the collapse. Chainlink flash crashed to nearly zero in the madness.
But the economy is now reopening, the curve is flattening, and investors are once again taking on risk, according to Mohamed El-Erian, chief economic adviser at Allianz.
Citing “good news across the board,” the economist says he is now seeing positive, “risk-on tone, which we haven’t had really for quite a while.”
Though he warns the economic recovery will not be a “smooth process” there is “big hope” that the return to risk-on sentiment is sustainable. This is a far more an optimistic outlook than the tone El-Erian took previously, warning investors to “buckle our seat belts.”
Crypto Comeback Possible If Risk Appetite Sustains
The return to risk will see stocks continue to rise, but potentially cryptocurrencies to surge.
After over two years of a downtrend, these assets are oversold and had been midway through making a recovery from low prices when Black Thursday struck.
The crypto asset class has recently come into the spotlight with institutional investors due to their hard-capped, digitally scarce supplies. Assets with limited supply can act as a hedge against inflation as the Fed adds trillions to its budget sheet.
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That stimulus effort also may be helping to boost crypto assets. Investors with stimulus money to burn are risking what they perceive to be free money handed to them from the government. Putting it at risk may seem less risky overall, compared to wagering one’s own hard-earned funds.
Coinbase data shows that purchases of crypto in the exact amount of what stimulus checks were issued had increased following their beginning to reach taxpayers.
Whatever is fueling the risk-on tone, it could cause a full-blown crypto comeback.
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