Analysts at Deutsche Bank (DB) are blaming the crash in Bitcoin (BTC) and other cryptocurrencies on what they call the “Tinkerbell Effect.”
According to the German lender, the “Tinkerbell effect” says that Bitcoin rises and falls based solely on what investors think the digital asset is worth rather than fundamental metrics.
The big problem right now is that investor sentiment towards crypto is extremely bearish and strong belief is critically important for continued gains.
Deutsche Bank’s strategists expect the sentiment-driven selling of Bitcoin to continue in the near-term as investors’ risk appetite remains cautious.
Bitcoin is currently trading just below $86,000 U.S., having suffered its worst weekly loss since the spring. Bitcoin has now dropped 31% since its Oct. 6 record high of $126,272 U.S.
The analysts at Deutsche Bank stress that crypto “has yet to function reliably as a defensive hedge” against a stock market downturn.
On the contrary, crypto prices appear to be falling alongside richly valued technology stocks.
Uncertainty over whether the U.S. Federal Reserve will continue cutting interest rates has also shaken investor confidence in risk assets such as Bitcoin.
Deutsche Bank concludes its note to clients by writing: “Unlike prior crashes, driven primarily by retail speculation, this year’s downturn has occurred amid substantial institutional participation, policy developments, and global macro trends.”
