Back in November of 2021, Crypto had over $3 trillion in market capitalization. Today it sits at $850 billion, a 70% drop.
The crypto winter has some investors worried that it might be a crypto ice age, but there’s cause for hope in all the doom and gloom. First, let’s look at what has gone wrong.
The Pandemic Era Was Unprecedented
When COVID lockdowns began in March of 2020, economies shut down. People were stuck at home, unable to spend money on restaurants, travel, or live events. This gave people with means the opportunity to put more of their money to work in investing.
The economic rebound was rapid and emphatic. Crypto benefited greatly. Though the pandemic is far from over, many people have started resuming normal activities. This means the time, money, and energy they were putting into investing in exciting opportunities like cryptocurrency is now being placed elsewhere. Part of the crypto crash rests in losing the safety net the global pandemic provided.
Correlation to the Stock Market
Crypto’s most ardent supporters touted it as an interesting diversifier that didn’t behave like other asset classes. However, throughout 2022 the correlation between cryptocurrencies and the broader stock market has become increasingly apparent.
Add into the mix that the stock market is experiencing a tidal wave of volatility and it is no surprise that cryptocurrencies, innately volatile as they are, are experiencing choppy waters.
Geopolitical Earthquakes
The war in Ukraine has sent ripples through the global economy. Supply chains have remained in disarray for months. Rising far-right extremism has become a global phenomenon. The effects of climate change are starting to be felt around the world.
In times of great uncertainty, investors tend to shy away from riskier assets. Conventional, proven asset classes do better when the future looks bleak and uncertain. Cryptocurrencies are innately risky. This risk is also part of their appeal, as their potential for long-term growth is unparalleled, but for them to thrive investors need to feel comfortable enough to roll the dice. Given the state of the world right now, it’s easy to see why that hasn’t been the case.
Signs of Crypto Spring
There is one major reason why crypto spring is inevitable. Namely, we’ve seen this movie before.
Crypto is no stranger to these kinds of bear markets. In June 2011, Bitcoin lost 99% of its value off of the Mt. Gox disaster. In August of 2012, there was a 56% crash. As recently as 2018, there was an 84% drawdown as many countries weighed banning bitcoin.
All of these stories ended the same — with the bear market providing a fertile ground for building on and iterating the technology, leading to breakthroughs and innovations which in turn bring investors back in. The market cap losses look dismal, but the reality is that the crypto ecosystem is as strong as it has ever been. New projects and technological advances are in the works, and institutional investors have retained their interest in the space despite its recent woes.
Now is an excellent time to get crypto exposure. There are a number of products that can do that, including the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).
For more news, information, and strategy, visit the Crypto Channel.
vettafi.com is owned by VettaFi, which also owns the index provider for SATO and BLCK. VettaFi is not the sponsor of SATO or BLKC, but VettaFi’s affiliate receives an index licensing fee from the ETF sponsor.