Crypto ‘may have reached ultimate bottom months ago,’ analyst says
2022 hasn’t been kind to crypto buyers, but the big swoon earlier this year has a silver lining that could prove to benefit other venture investors.
After a widespread selloff in Q1, according to Coinmarketcap, crypto’s total market capitalization fell by more than half (-56%) in the second quarter. However, since July, the crypto’s total market capitalization has increased by 7%.
“We may have hit the ultimate bottom months ago because of overlapping liquidations,” Thomas Dunleavy, senior market analyst at Messari, told Yahoo Finance. “The market is down to only the true believers at this point. Most of the sellers seemed to have left.”
With the rise in interest rates from central banks, crypto leverage greatly reduced from May with the collapse of the $40 billion Terra ecosystem followed by hedge fund Three Arrows Capital, lenders Voyager, Celsius and others. Major crypto executives including Genesis Trading’s Michael Moro, Kraken CEO Jesse Powell and Sam Trabucco of FTX’s affiliate trading firm, Alameda Research, also resigned.
Celsius Networks CEO Alex Mashinsky also left his position, citing regret over how his continued role during the firm’s bankruptcy had “become an increasing distraction.”
So far this year, bitcoin and other cryptocurrencies have been some of the biggest losers among risk assets, with moves of 60% for bitcoin and as high as 84% for other coins such as Avalanche (AVAX).
But in Q3, Bitcoin was little changed (+1%) while the Nasdaq (^IXIC) fell 2.7%, the S&P 500 (^GSPC) fell 4%, and the Dow (DJI) fell 5.4% as of the market closed Friday.
And while bitcoin has not proven to be the inflation hedge its promoters said it was, the asset class — dominated by speculation that worsens macro conditions — may continue to push crypto as a leading indicator of how much risk investors are taking.
“A crypto rally is certainly no guarantee, but it’s always a good leading indicator,” Farrell said.
VanEck portfolio manager Pranav Kanade noted that crypto performance in the current bear market doesn’t feel as existential as previous rough patches.
“In the bear market of 2018 to 2019, it was not clear that the space was going to survive,” Kanade said. “This time, during the downturn from the market peak in December, there is a sense of inevitability in the ecosystem.”
Kanade added that whether crypto investments move beyond speculation depends on whether crypto teams can attract more users to various blockchains. Furthermore, for these apps to work, blockchains need to scale their throughput (transactions per second).
“Crypto accounts for less than 50 basis points of all global assets today, and there are approximately 2.5 million daily users of blockchains today,” he explained. “But there are more than 4 billion people with smartphones. For market capitalization to grow, daily active users must grow.”
And while Ethereum’s Merge upgrade did nothing to scale throughput, the market has interpreted the move in the right direction.
Ether (ETH-USD), up 26% from $1,057 on July 1 to $1,339 on Friday afternoon, has outperformed bitcoin and most other assets since July.
“Now we know how a lot of these chains like Ethereum, Solana or Cosmos are going to do it, so now it’s just a race to get there first,” Kanade said.
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David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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