WITH INFLATION IN ADDITION OF FED RAISING INTEREST RATE RISK ASSETS ARE MOVING WITH GREATER PACE
"Crypto is facing a lot of new challenges," said El-Erian, senior financial adviser at financial services company Allianz and president of Queens' College in Cambridge, speaking about Yahoo Finance live last week.
El-Erian states that crypto is currently in the "first round" of its development, characterized by overproduction and overuse. That is because he 'simply reduced the barriers to getting into a certain job,' he said.
"We've seen a lot of people come in who don't really understand what that crypto environment is," El-Erian said. "They just saw the prices go up and thought it would go away forever, so we had a lot of guessing."
Things are changing now, according to El-Erian. "We wash all that," he said. “You wash on the side of delivery and the side of need. And the hope that you have to rebuild a solid foundation, as is often the case with new things. ”
El-Erian added that the pattern he is watching with crypto has been wasted from time to time with new features. “That happened during the steam engine. Occurs during fiber optics. It happened even during the 2000s, ”he said. "The first round is not good at all."
In May, TerraUSD, an algorithmic stablecoin, collapsed with his sister, Luna. Then in June, crypto lender Celsius stopped billions of assets as investors rushed to withdraw money. Babel Finance, another crypto lender, has also recently suspended withdrawals, and Three Arrows Capital, a crypto hedge fund fund, is facing liquidity issues.
Earlier this month, Bitcoin dropped to below $ 20,000 for the first time since December 2020, although it has stabilized and risen above that mark again. At the same time, Ether, the second largest cryptocurrency, has dropped below $ 1,000 - its lowest price since January 2021.
Many crypto companies have had to reduce their workload significantly due to inflation. Coinbase has seen the number of shareholders decline as it puts in 1,000 employees in June.
It is not yet clear how long the current stabilization period will continue, with some crypto leaders predicting the coming "crypto winter".
"In the last winter of crypto, trading revenue (our main source of revenue) has plummeted," wrote Coinbase CEO Brian Armstrong in a blog post announcing the collapse of his company on June 14. "Although difficult to predict the economy or markets, we are always planning the worst so much so that we can run a business anywhere. ”
El-Erian is not the only adult who believes that a crash will lead to better technology and a sustainable industry in the long run.
"In stocks and crypto, you will see companies that are backed by cheap, easy money - but who have no real business prospects - will disappear," Mark Cuban told Fortune earlier this month. "Disruptive applications and technologies released during the bear market, whether stocks or crypto or any other business, will always find a market and be successful."
Counting the crypto now facing it is just one part of a major economic change, according to El-Erian. "It 's time to get out of this world of high-tech injections, where everyone tends to be infertile, when we do stupid things when investing in market segments that we should not invest in, or invest in the economy in irrational ways," he told CNBC's Squawk Box earlier this month.