What on earth made cryptocurrencies, led by bitcoin, plummet? Was it mainly because of Coinbase's IPO or was it because of Turkey's ban on them?

I have repeatedly warned in the past that since cryptocurrencies are not widely used to buy goods and services, their only function, as an investment, is to act as a hedge against major currencies depreciating.

But when cryptocurrencies start to affect the status of fiat currencies, then it's only a matter of time before countries across the world strengthen regulations on them. This would also become a main reason for cryptocurrencies to tumble.

However, what is more important is that the proportion of retail investors in cryptocurrencies has shot up, and this has given big investors a chance to cash out. This is also why cryptocurrencies have been hesitant to move forward over the past months.

Compared to products of energy and commodities, which can also act as a hedge against the depreciation of major currencies, the gains of cryptocurrencies were indeed a bit exaggerated, and this might have made investors consider whether they should transfer their capital to other related products.

In addition, another possible reason is that major investors are secretly cashing out, taking advantage of the growing presence of retail investors.

Whatever the reason, when bitcoin jumped twenty-fold from last year's low of US$3,000 to US$60,000, or in the case of dogecoin, which was in the headlines last week and more than doubled in a single day, it's a sign of the madness that has afflicted cryptocurrencies, and any investor who has recently taken the plunge is actually speculating rather than investing.

Of course, does the sudden plunge in cryptocurrencies such as bitcoin mean that the bubble has burst?

I believe that unless China, the United States, Europe and other major nations strengthen their supervision over cryptocurrencies, or even restrict their use, Bitcoin will not become worthless. However, a short-term drop to US$30,000 is in the realm of possibility because bitcoin started to take off from this level at the start of this year. So even if it falls back to US$30,000 now, it is only erasing all of this year's gains - not an unreasonable move.

Nevertheless, with bitcoin plummeting and the CRB Index gaining more than 4 percent this month, my hunch from last week that money may have been quietly moving from cryptocurrencies into energy and commodities may have been proven right.

And if the CRB Index continues to stabilize or even accelerates this week to break the 210 mark, then my premise will be further tested.

If commodity prices have risen sharply, however, it will eventually lead to inflation. Even if central banks exclude food and energy prices and calculate core inflation pressures only, production costs are bound to be affected due to the rise in commodity prices, and vendors will also transfer the cost pressures to consumers, so core inflation will inevitably move upwards.

That will force central banks to raise interest rates earlier than expected in order to combat inflation. This will also reduce depreciation pressures on major currencies and help the trend of cryptocurrencies - and this may also be the issue that most cryptocurrency holders are considering.

But central banks may deal with inflation by raising interest rates only and QE actions such as bond purchases may not be affected at all for now. Why is that? I shall explain next week.

Andrew Wong is chairman and CEO of Anli Securities

Crypto has room for further corrections