Welcome (back) to the volatile and spooky world of crypto!
After the record-shattering year of 2021, crypto assets across the board appear to be coming back to reality. Unless you’re a stablecoin, prices have done nothing but bleed since the start of the new year. Year-to-date, BTC is down ~20%, ETH is down ~30%, and SOL is down ~45%.
So… What exactly happened here? And what exactly happens next? Well, as always, it’s anyone’s guess – there are no real clear answers. But that won’t keep us away from taking a stab at it.
Factors That Could Of Led To The Latest Correction:
- Perhaps the biggest pressure on prices this month has been the widespread expectation that the Fed will begin hiking interest rates in March. The potential interest rate hike is causing investors to move out of riskier assets like crypto. For the very same reason, growth stocks (see ARKK) haven’t been too hot either as of late.
- President Biden is expected to issue an Executive Order on cryptocurrencies in early February (see Regulatory section below)
- Russia is also looking into crypto – not in a good way, of course. (also see Regulatory section below)
While it’s hard to know where prices will go over the short to medium-term, there are a multitude of factors offering up opportunities for long-term investors.
- Although this drawdown hurts, it is not out of the ordinary for crypto investors. Each previous drawdown put the market on healthier footing, and created opportunities for uncovering value.
- According to Grayscale, crypto has benefited historically from rising geopolitical risks (see Ukraine, Kazakhstan, and Taiwan).
- Crypto markets have stronger fundamentals now than they did during the prior market cycles. Many leading projects have come to market and have been able to rapidly increase users, usage, and economic fundamentals.
- According to Coin Metrics, on-chain indicators (i.e. MRVR, HODL Waves, etc.) are reaching points that historically have signaled market-cycle lows.
- Unlike previous market crashes, this time around crypto companies are flush with cash. The frauds and fakers may disappear, but the companies with a real business plan are set to weather the storm.
December 2013 to January 2015… December 2017 to December 2018… April 2021 to July 2021… In each of these corrections Bitcoin fell by 85%, 84%, and 54%, respectively.
Following each of these drawdowns though, innovation and adoption continued, markets recovered, and eventually went on to make new highs.
So while the markets may seem volatile today, we suggest you hang in there. Opportunity continues to exist for crypto investors with a long term horizon.