Will Crypto Recover? | The motley fool

Cryptocurrencies suffered enormously in 2022. Scandals and bankruptcies rocked several big and popular names in the space, against a backdrop of raging inflation and painful anti-inflation policies. From market-loving growth stocks to overpriced real estate, everything risky took a massive price cut.

Of course, cryptocurrencies led that race to the bottom, and many investors lost their enthusiasm for the crypto sector after price cuts like these:

Data source: YCharts.

Was it the beginning of the end for crypto investing? Did the crypto bubble burst once and for all last year? Or should you expect at least some of these steeper coins to make another comeback?

Here’s what I think about these burning questions. Let’s see if you agree or not.

Historical perspective

Let’s rewind to 2013. Bitcoin was the only name in the game at the time, but it was more than enough fuel for some spectacular market actions. The token was worth less than $13 per coin when it performed its first “halving” in November 2012. It’s a predetermined 50% cut in the rewards earned for mining a new Bitcoin block, scheduled to happen roughly every four years. The inflation-killing event inspired more people to try their hand at Bitcoin mining, and the token soon soared.

Bitcoin prices rose to $130 by August 2012 and then peaked at $1,151 in December. That’s when a leading cryptocurrency exchange was hacked, causing it to bubble with authority. Bitcoin retreated to about $180 per coin amid loud proclamations that the entire cryptocurrency concept was just a mirage with no real value. We Fools poked fun at the new crypto market with the fictitious FoolCoin launch on April 1, 2014. Have they have have.

Another increase, peak and crash followed in 2017, about a year after the next halving. This time, Bitcoin’s move led the price action of thousands of newer cryptocurrencies, including all the names listed in the table above. Trading volumes were also much higher and price movements received more coverage in traditional news channels. Bitcoin prices reached almost $20,000 per coin this time. Yet another crypto winter followed and many investors swore off cryptocurrencies forever. The old joke just wasn’t funny anymore, was it?

The next halving during the COVID-19 shutdowns in May 2020 didn’t seem to do much at first, as Bitcoin prices remained stuck for months at around $10,000. Yet another bull run followed in 2021 and Bitcoin- prices rose above $60,000 a couple of times. Some of the same people who had given up on crypto in 2018 took this market seriously again. Non-fungible tokens were red hot for a while. Some retail chains started accepting payments in Bitcoin, Ethereum or even Dogecoin (DOGE -0.32%).

And then, you know, followed the inflation-inspired withdrawal from risky investments. The eternal death of Bitcoin, Ethereum, Dogecoin and Cardano was announced from the rooftops. This is different somehow. This really is the end. There’s no going back from the devastating price cuts you saw in that handy little data table.

Right?

Don’t call it a comeback (crypto has been here for years)

Well, the rumors of the death of crypto have been exaggerated many times before and I expect another full recovery. You see, these smart digital currencies have changing implications for every corner of the financial world. The market is also off to a good start in 2023.

The government seems to have tamed the inflation beast at last. The economy may go through a recession this year, but should come out stronger on the other side. Investors are interested in riskier growth-oriented ideas again, including cryptocurrencies. The four digital currencies listed above are up at least 43% year-to-date, led by Bitcoin’s 73% rise.

And there are several additional growth catalysts in the cards right now:

• The next Bitcoin halving is about a year away. The exact date depends on how quickly people and companies earn their Bitcoin mining rewards, but the last block at the current reward rate should fall near the end of April 2024. You’ve seen what usually happens a few months later. History doesn’t repeat itself, but it tends to rhyme. This cyclical pattern alone seems almost certain to trigger a healthy bull run next year.
• Regulators and crypto projects are hammering out a future framework for crypto regulation. The Securities and Exchange Commission (SEC) lawsuit against XRP’s governing body, Ripple Labs, is awaiting a verdict after more than three years of claims, filings and high-profile media sparring. When the club slams, it should bring some much-needed clarity to how the SEC and other government agencies should treat the crypto market as a whole. Even a draconian ruling in the SEC’s favor would be better than the rudderless boat crypto investors have been stuck with so far.
• The inflationary crisis gave many people the idea that traditional financial systems might not be perfect after all. Cryptocurrencies may have the power to right many of the wrongs of the old banking market, for example. Just a couple of usable and widely adopted decentralized finance (DeFi) apps would light a fire under whatever blockchain network powered the new app. Even a minor hit can do the trick for a moderately sized crypto like Cardano, while Ethereum’s needle is harder to move.

Bitcoin’s predictable halving events may set the rhythm of the crypto market, but in the long run I’m much more interested in robust regulations and mass market adoption of DeFi apps. That is where the real value of the crypto market comes from. Without developers and app users, cryptocurrencies don’t mean anything.

So there is no doubt in my mind that cryptocurrencies will rise again. However, the timing and extent of the next increase is up for discussion. Again, look for successful DeFi apps and invest in the cryptocurrencies that make them tick. Ideally, you already own some before the rocket launch starts without much advance notice.