Table of Contents: Will Crypto Recover?
Will Crypto Recover? That is an important question. Some people think crypto will never recover. When the Covid 19 pandemic started, many people decided to use their free time during a lockdown to explore new investment opportunities. Both experienced investors and casual traders recognized the rise of cryptocurrencies as the perfect new investment opportunity.
This applied especially to those who preferred trading risky assets and looking to earn profits fast. During that period, cryptocurrencies were being hyped by celebrities left and right, from Elon Musk to Tom Brady and Kim Kardashian. This, and the rise of NFT’s non-fungible cryptographic assets on a blockchain, turned even more attention to the crypto sector.
More interest leads to more buying, and more buying often results in higher pricing, all of which contributed to a record-breaking Bitcoin (BTC) value of $69,000 in November 2021. As with any market, there were ups and downs, but none of them were as bad as the most recent, still ongoing, crypto market crash.
Only a year after it hit its record high, the cost of bitcoin, the most well-known cryptocurrency, fell below $16,000. As for the other currencies, Ethereum is also down sharply, while Elon Musk’s favorite, Dogecoin, dropped about 90% from its peak of $0.65.
Why did Crypto Market Crash in 2022?
In Q2 of 2022, Bitcoin lost around 58% of its value, while the market for cryptocurrencies as a whole lost about $1.2 trillion. Both institutional and private investors suffered significant losses. Morgan Stanley analysts estimated that retail traders who bought Bitcoin in the last year, a year and a half, have an average entry price of around $45,000.
These traders and many other long-term investors are now asking: will crypto recover from the 2022 slump? Will crypto recover today? Will crypto recover Reddit? Which crypto will recover the fastest?
The crypto market is a trillion-dollar industry, and we can only try to explain its downfall by citing many different reasons, some completely unrelated and some leading after the other. Here, we look at the biggest 2022 catalysts that facilitated a pullback in crypto prices.
We already mentioned negative developments and news within the crypto industries as one of the main factors that affect the value of Bitcoin and other cryptocurrencies. One of the most recent negative developments that severely hurt the crypto market in November was the downfall of one of the leading cryptocurrency exchange companies, FTX.
On 10 November 2022, the crypto analytics platform Arkham Intelligence discovered that FTX started to process withdrawals “in a limited capacity.” It later proved that the exchange had an $8 billion hole, resulting in an overnight collapse of FTX. The cryptocurrency exchange filed for bankruptcy a week later. Its founder, Sam Bankman-Fried, cited ‘Huge Management Failures’ as the main reason behind the collapse.
The collapse of FTX, which processed almost $1 billion in transactions daily, negatively affected other exchange companies as well.
Before that, in June 2022, Celsius Network, a significant U.S. cryptocurrency lender, halted withdrawals and transfers due to “extreme” circumstances. The downfall of Celsius was one of the first negative developments that contributed to a decline in the cryptocurrency market. Before Celsius, a stablecoin terraUSD and its sister token luna collapsed.
Customers’ mistrust has been growing due to reports of businesses declaring bankruptcy. This mistrust sparked a wave of public and private sell-offs that decimated $1.2 trillion worth of the bitcoin market.
Geopolitical and Macro Factors
The aggressive central bank tightening seen in 2022 is arguably the biggest catalyst for a decline in crypto prices. The world’s largest central banks, including the Federal Reserve, were forced to quickly and aggressively raise interest rates to cool the economy in an attempt to curb inflation.
This type of environment is difficult for risky, unprofitable assets, as they are dependent on external funding, which became much more expensive in 2022. As a result, tech stocks moved sharply lower, dragging Bitcoin and the entire crypto market lower as well.
Moreover, inflationary pressures and the Ukraine conflict have seeped into the cryptocurrency market. The market has been harmed by a crisis in the cost of living, which has led some investors to lower their potential losses by selling cryptocurrencies.
Calls for increased regulation are viewed as a danger to the decentralization of crypto, which is also affecting the value of digital currencies. There has already been an increase in crypto regulation globally, as individual and institutional investors have suffered substantial losses.
Before EU-wide regulations take effect at the end of 2023, the eurozone nations have been asked by the European Central Bank to unify their various crypto regulatory legislation. Additionally, the U.S. is promoting new legislation to close regulatory loopholes in the cryptocurrency industry, with the support of the U.S. Treasury.
The calls for more regulation in the cryptocurrency market have only intensified after the spectacular collapse of FTX. The FTX fall also means the crypto market recovery is going to take some time until investors regain the confidence to return to investing in digital assets.
When will crypto recover?
We have had hundreds of years of the stock market’s ups and downs, making it simpler for us to identify patterns and anticipate the future. In contrast, the cryptocurrency industry is just 14 years old. Will crypto recover in 2023?
This makes the scenario incredibly difficult to foresee, and the value of the cryptocurrency sector lacks fundamentals like those of a publicly listed corporation. The volatility of cryptocurrency has already been noted. If and when the crypto market will recover remains to be seen, but there have been positive signs that the crypto winter is ending. People always ask me if will crypto recover soon. The real answer is nobody knows.
First of all, the network effects of Bitcoin, Ethereum, and several other cryptocurrency projects have significantly risen over the last couple of years. Along with increasing retail investors, Wall Street corporations, venture capital funds, and even some significant public companies are also taking stakes. The cryptocurrency industry will soon be too integrated into the main financial markets to remain in decline.
Importance of analytics
It’s critical to comprehend the hazards associated with investing in highly speculative, high-risk assets like cryptocurrency and be aware that you might lose the money you put up for investment.
However, Bitcoin still can hold its value, especially in these economic conditions, since it has been seen as an alternative to gold, meaning it could prove itself extremely valuable against inflation.
If there is one positive about a market decline, it’s the fact that investors have the opportunity to purchase a potentially valuable asset at a lower price. Businesses joining the crypto sector from traditional financial markets will have the upper hand over the others.
The expertise obtained in implementing analytics tools for market monitoring and fraud purposes will not only be immediately relevant in the crypto arena. Still, it will also assist enterprises in getting a quick and in-depth understanding of how these decentralized markets function.
Can ‘Store of Value’ Help? Will Crypto Recover?
An investor will value a firm stock because it produces cash flow. A dividend is often given out to shareholders as a portion of the company’s profits, if not entirely. On the other hand, Bitcoin has no underlying assets. It lacks the means to generate income without the involvement of a third party. Its value is considerably more in line with how gold has been valued for thousands of years.
Gold’s worth comes from its scarcity and the fact that people have collectively decided over many generations that it is valuable. This indicates that changes in its price are solely driven by investor predictions about whether it will increase or decrease in value in the future. Hence, Bitcoin is mostly seen as a “store of value.”
And because of this, the value of cryptocurrencies is based on speculative activity. Every positive development in the industry will increase value, while every bad narrative will decrease value. That is why the price of bitcoin might fluctuate drastically, even within a single day.
Ultimately, Bitcoin’s scarcity is likely to attract more long-term investors, helping the world’s largest digital asset to further increase its valuation.
The cryptocurrency industry will soon be too integrated into the main financial markets to remain in decline. Also, many controversial personalities are leaving the crypto world, and being replaced by experienced, more conventional experts is also a good sign for market recovery.
Fewer celebrities and more financial and technical experts are what can also help Bitcoin regain investor confidence again. Money managers in charge of billions of dollars can lift crypto prices higher when they decide to invest. However, they are likely to seek more regulation and clarity from authorities.
Overall, it’s too premature to expect a recovery in the cryptocurrency market until the macroeconomic environment improves and becomes more friendly for risky assets. The Fed stopping or pausing interest rate hikes will help the crypto market recover some of the losses, but this is not likely to take place before 2023.