Digital money investors need to watch moves of central banks

Dogecoin creator Jackson Palmer's reading that the cryptocurrency market could possibly be headed for a major correction is something I agree with (Cryptocurrency crash is coming, warns Dogecoin creator; Sept 18).

But Mr Palmer misses the bigger picture of why investors poured massive amounts of money into this market in the first place.

Since the global financial crisis of 2007-2008, several major central banks have undertaken a great global monetary policy experiment of extraordinarily low rates and global quantitative easing.

The excess liquidity has largely benefited the global bond, stock and property markets, and part of it appears to have also trickled into the cryptocurrency market.

However, in recent months, these central banks have adopted a more hawkish stance and appear eager to signal that their global monetary policy experiment is slowly coming to an end.

The global markets have become addicted to a loose monetary policy, and many investors fear that monetary tightening could have a significant negative impact on their investments.

As with any other form of investment, scams exist in the cryptocurrency market.

But besides being wary of scams, cryptocurrency investors should stay abreast of global economic conditions, and, in particular, anticipate the moves of the central banks.

Chan Yeow Chuan

A version of this article appeared in the print edition of The Straits Times on September 19, 2017, with the headline 'Digital money investors need to watch moves of central banks'. Print Edition | Subscribe