For the majority of cryptocurrencies, 2023 has gotten off to a promising start.
Most tokens have made the transition to recovery after taking the biggest hit in the past year. Though when compared to their all-time highs during the bull run of 2021, current prices are still quite modest.
However, the regulations against crypto exchanges such as Binance and Coinbase have ramped up. Coupled with the bankruptcy of FTX and Genesis amongst others, plus pauses in crypto withdrawals, the sentiment in crypto appears to be fast shifting.
Investors are wondering whether the digital asset is a worthwhile long-term investment or just a flash in the pan.
In this article, we explore what the remaining half of the year looks like for crypto, and if it is still an asset you should consider investing in.
Why is the crypto market dead?
Investors in major cryptocurrencies have been selling their stakes, causing prices to tumble to unprecedented levels since 2020.
Amid that, industry analysts, experts, and critics of cryptocurrency have been looking toward how the plunge will impact digital currency. They note that the crash could be a wake-up call for how risky digital assets are. This has led many to assume that crypto is dead.
3 Reasons Why Some Investors Believe That Crypto is Dead
#1. Lack of trust.
Trust is essential when dealing with financial assets.
However, when it comes to crypto assets, the reasons to be skeptical are staking up.
The bankruptcy of crypto exchanges like FTX revealed how careless exchange operators were with people’s investments. The case of FTX, the 5th largest crypto exchange at the time, boiled down to the risky investments of the CEO.
This loss of trust was further fueled by the de-pegging of stablecoins which saw tokens such as Tether (USDT), USDC, and the subsequent meltdown of Terra and its token Luna.
Stablecoins were created to facilitate crypto transactions. They were meant to act as a proxy to the dollar, given that their values were tied to the currency i.e. 1 token to $1.
However, the subsequent de-pegging of various stablecoins has led investors to question the integrity of crypto firms and scale back on their investments in digital assets and tokens.
#2. Increased regulation.
Regulation on cryptocurrencies is also gaining momentum.
The last in the slew of attempts to rein in crypto is the SEC clampdown on crypto exchange. The US regulator has ramped up its enforcement of the crypto industry, bearing down on companies and projects that were allegedly selling unregistered securities.
The regulator has sued Coinbase and Binance for selling unregistered securities to Americans. Coinbase has even threatened to leave the United States, while Bittrex has announced that it would wind down its US operations due to regulation uncertainties.
#3. Macroeconomic headwinds.
For an asset that was touted as a hedge against inflation, the current macroeconomic headwinds have not done cryptocurrencies any good.
In a bid to control inflation, the Federal Reserve embarked on a campaign of aggressive rate hikes, sending interest rates to their highest levels in about 4 decades. The meltdown that followed in global financial markets also affected cryptocurrencies, sending them to historic lows since 2017.
Does crypto have any future?
Crypto has a future, but it would take time before it returns to its historic highs.
BlackRock filing for a Bitcoin spot ETF is an indication that the digital asset is generating interest from institutional investors. This has renewed interest in the digital asset, with analysts saying that the current clampdown by SEC is a sign that the crypto industry is maturing.
However, unbridled regulation may dampen enthusiasm from retail investors, as it defeats the purpose of decentralization and creating an alternative financial system which many believe is rigged against them.
Is crypto going to recover in 2023?
As seen from the events of 2022 and 2023, the price action of cryptocurrencies is highly correlated with tech stocks. Both assets are affected by the hike in interest rates and inflation.
Given that inflation is already slowing down, amidst growing speculations that the Federal Reserve may start easing interest rates later this year, cryptocurrencies may be seeing a more profitable end to the year.
Year to date Bitcoin is up by 75%, while Ethereum is up by 60%. Compared to 13% from the S&P 500, and Nasdaq’s 29%, cryptocurrencies have fared better by far. Albeit, investors will be more skeptical and frugal with their investments going forward.
Is crypto worth investing in?
Cryptocurrencies are worth investing especially if you have a high-risk appetite and looking to diversify.
However, as the asset’s price action has shown, it is a highly risky and volatile asset. As such, when investing in crypto, pay significant attention to your risk management strategies.
Photo by Art Rachen on Unsplash
Good pun in “the reasons to be skeptical are staking up” as I interpreted it to read ‘stacking-up’!
I disagree with your characterization of SEC reigning in crypto and “bearing down on companies and projects that have allegedly been selling…” These combine an effect and confirmation of this agency doing only its job.
I’ll leave “and creating an alternative financial system that many believe is rigged against them” others’ commentary.
To what “meltdown that followed in global financial markets” are you referring?
Am interested in this concept of ‘unbridled regulation’. A purpose of regulation is to provide enforceable standards for the vulnerable, uneducated, non-professionals.
I do like the compilation, aggregation and passion imbedded in your article, Chika.