The latest crash of Ethereum spread panic among investors throughout the market especially, when the second-largest cryptocurrency on the market fell below the $1,000 mark. However, other investors feel ETH has not yet bottomed and the market should be prepared for another decline.
Daniel Cheung, Co-founder of Pangea Fund thinks that the worst months for cryptocurrencies could be July or August. Since the digital asset sector follows macro movements like inflation, as the fund manager says, the market is currently in “Macro trading” mode.
Given the Fed’s increased hawkishness and the abnormally high inflation data, Ethereum‘s recent trading at a correlation of 0.8 to Nasdaq indicates that the cryptocurrency practically “blindly” reflects patterns in traditional markets. These patterns are unlikely to reverse in the coming months.
Cheung highlights two main factors that determine stock prices to be future earnings and a multiple of what you are willing to pay for those earnings in the future. In addition, given rising interest rate expectations, multiple compression has been a major contributor to the recent decline in equity prices that we have witnessed.
The future of Ethereum
The early stages of reduced earnings revisions are just now beginning to play out. He adds that because this is a market condition that very few investors have experienced, there will probably be more instances of lower earnings revisions in the months to come.
“Mutual funds and hedge fund analysts I speak with have not priced in a full recession although few will; doing so would be a difficult professional decision”
Cheung further notes that there is a likelihood that Ethereum might be a levered and liquid bet on Nasdaq. This means that investors can have access to the traditional market through a cryptocurrency that almost exactly mimics their movement on the market.
Cheung thinks that once markets experience the strain of rising rates, continuing pressure from inflation, and even a potential recession, Ether will follow the Nasdaq because of their strong correlation.
The market has lost 45% of its value since its 2008 high, and it is currently down approximately 30% from its most recent ATH. This leads the fund’s co-founder to feel that there is still a sizable amount of potential for a decline in the upcoming months or following the subsequent rate hike.
At the time of publication, Ethereum is down around 1% in value in the last 24 hours, trading at $1,130.