Having spent much of the summer in a “Crypto Winter” freeze, digital assets appear to be poised for a thaw but not as soon as you might think.. According to Dan Mulligan, Director of Marketing at the crypto platform AscendEX, a breakout will come eventually. .
“Last year, both Ethereum and Bitcoin — the two largest crypto currencies — hit record highs,” Mulligan says. “Then, both got swept up in a wave of pessimism, scandals, and market volatility. As things get back to normal, the extraordinary opportunities that follow unprecedented calamities will become clearer.”
Prices
Top of mind for many crypto currency investors is, naturally, their price. Having fallen by two-thirds since its 2021 all-time high of $68,000, Bitcoin remains the token to watch. While many investors may have thrown in the towel or been scared off from investing in the crypto space, Mulligan says it’s important to remember that sizable market swings happen in any asset class.
“In 2000-1, the tech-heavy NASDAQ Composite lost 80% of its value,” Mulligan says. “Amazon (AMZN) traded in the low single digits. The rest, of course, is history.”
A more apt comparison may be from the Great Recession of 2008-9, when the financial industry suffered a crisis of credit as well as confidence. Industry stalwarts like Bear Stearns and Lehman Brothers declared bankruptcy, while august institutions like Merrill Lynch and Washington Mutual were merged into larger institutions at the government’s behest. This year, crypto exchanges have suffered similar scandals; Celsius, Three Arrows, and Voyager all melted down. The good news is that war and inflation have stolen the headlines that might have been occupied by the non-stop ransomware stories of last year.
In any event, Mulligan says that it will take investors, especially first timers, time to process Crypto Winter; time that major exchanges will use to shake out the weaker players and/or consolidate. As that happens, expect confidence to return and prices to recover.
Adoption
Many expected 2022 to be the year that crypto broke into the mainstream, perhaps even becoming viable currencies for day-to-day transactions. Instead, crypto adoption has become something of a mixed message. Tesla sold most of its Bitcoin last quarter, and PayPal no longer advertises its once-trumpeted crypto wallets.
Still, according to Mulligan, there are encouraging signs that the crypto ecosystem is itself adopting by responding to the marketplace. The Ethereum Merge, for example, is expected to reduce that platform’s carbon footprint by roughly 99.5%. And financial giants, including Fidelity and MassMutual have stocked up on crypto as a way to diversify their clients’ portfolios and pay life insurance claims, respectively.
NFTs
Last year was unquestionably the year of the non-fungible token, or NFT. Sales reached an incredible $25 billion from next to nothing the year before, according to DappRadar, an app store for decentralized applications. Celebrities like Snoop Dogg and Paris Hilton piled in by the dozen. Not long thereafter, everyone was familiar with Beeple, Crypto Punks, and Bored Ape Yacht Club.
Conversely, 2022 has been a very different story. Prices have come way down, and sales of NFT art have evaporated. But, once again, Mulligan says that there are green shoots growing beneath the crypto tundra.
Even as investors soured on NFTs as paths to quick riches, their value as utilities became clearer. Indeed, NFTs may very well become the backbone of the Metaverse, as they enable a host of decentralized finance — or DeFi — tech such as smart contracts, smart tickets, self-governing decentralized autonomous organizations (DAOs), and rewards.
Regulation
For now, however, crypto currencies are still viewed principally as investments, which makes them subject to an old Wall Street maxim, “the market hates uncertainty.” Even as crypto becomes more accepted by institutions and individuals, Mulligan says that there is a giant cloud hanging over the crypto marketplace: the threat of government or even private regulation.
“Investors are waiting to see if entities like the SEC take additional enforcement actions against crypto exchanges as part of the Coinbase probe,” Mulligan says. “They also want to see what becomes of the executive order that President Biden signed way back in March, which was supposed to initiate a government study of developing digital assets responsibly.
The market also wants to know what the House of Representatives will do with regards to regulating stablecoins, which has been a hot topic since Luna and Terra collapsed. So far, the only crypto securities that have been registered by the SEC deal in Bitcoin futures. Investors don’t yet have access to a ‘clean’ crypto fund that’s been rubber stamped by the government.”
With a large chunk of the President’s agenda now passed, however, and student loan relief announced just this past week, Mulligan says to watch out for regulatory action some time after the November elections. Nevertheless, if Wall Street truisms ring true, then by the time you read about it in the news, it’s already too late.
