This article will be dedicated to looking at the crypto market, including why there has been a large selloff, where the market stands today, and what we may expect in the future.
The Selloff
The past year has been very tough for crypto, as a surge of growth was met with a re-evaluation of the market. Crypto companies like Coinbase Global drastically increased their workforce and invested heavily in advertisements. However, this growth came to a halt with major global events like surging inflation, covid lockdowns, and a war in Ukraine. This sparked a massive selloff that forced crypto companies to re-evaluate themselves. The market value of the entire crypto sector has fallen from $3 trillion to less than $1 trillion in the span of 7 months. $BTC price has dropped below $21,000 a coin, a 68% drop from its November high of $68,000 a coin. $ETH dropped below $1,000 and $DOT dropped to $7. Coinbase was forced to lay off 18% of its staff and has experienced an 80% drop in its stock price. Riskier investments suffer during economic downturns as investors look to put their money somewhere safe. Because crypto is so new and because many investors don’t understand it well, its volatility is understandable.
There are concerns over how crypto will be regulated in the U.S. and other nations across the globe. The SEC chairman said that crypto legislation could undermine market regulations. If the U.S. Congress wrote legislation for the cryptocurrency industry that could “compromise regulations that govern the broader capital markets”. I think these hurdles cause trust issues for investors because of how quickly the outlook for crypto can change. Nevertheless, a large selloff doesn’t mean all doom and gloom. Crypto has significantly matured and has woven itself into Wall Street and major financial institutions globally. There have been significant advancements in cryptos infrastructure, financial backing, and legality. It is becoming easier to buy and sell crypto across the world, and despite current conditions, crypto will continue to grow.
Here is an interesting article and 25+min video from FT: www.ft.com/content/aae591e1-b291-493c-94c6-6babcb682831
Why is Crypto Valuable?
One of the toughest questions investors face when looking at the crypto industry is how to value crypto. Let's first take a step back and look at what crypto is and what makes it stand apart from other forms of currencies. “A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers.” Many of these cryptocurrencies are decentralized networks based on blockchain technology, which experts believe will disrupt many industries such as finance and law. Cryptocurrencies create faster and cheaper transactions on a system that does not collapse at a singular point of failure. Crypto is also not generally issued by any central authority, making them theoretically immune to government interference or manipulation.
Cryptocurrencies, and the blockchain technology that supports them, are revolutionary to the way we make and process transactions. As more companies, governments, and people adopt crypto, its value will rise with it. And as with blockchain technology, if the blockchain can scale a lot more than it can today, I think you would see regulators get more comfortable bringing the digital asset into traditional markets. You could see the potential for a central bank digital currency forming the basis for a much more digital payment structure. And then you could see capital markets opening up into a much more globalized format. Crypto is still one of the riskiest forms of investment, and since it’s still in the stage of establishing itself, there will be large price swings in both directions. $BLOK
The Future
In many ways, 2021 was a “breakthrough” year for crypto as many of the currencies hit all-time highs, along with heightened public interest. But what is there to expect after a rough 2022, where many of the largest winners from 2021 have become the biggest losers. This year has seen expressed interest in new regulations for crypto which vary by jurisdiction. Despite obstacles, I am relatively bullish on crypto and look to get more involved in the space, especially with the low prices we are now experiencing. One developing area of the crypto sector has been crypto funds such as hedge funds, VC funds, and blockchain funds. “Crypto hedge funds are the fastest-growing segment of the hedge fund industry” and many of these funds are the top-performing worldwide. With new ways of investing in crypto and increased activity from major financial institutions, I am cautiously optimistic about crypto's future growth and the blockchain technology that backs it. There is a lot of uncertainty in the near future, but from a long-term investment standpoint, crypto can be a great investment. $COIN (Coinbase Global Inc)
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