The crypto world is making a big comeback, but will it last?

By Paul R. La Monica, CNN Business

It has been an absolutely brutal year for investors in bitcoin and other cryptocurrencies.

Bitcoin has lost more than half of its value in 2022. Now hovering around $ 23,000, the price of a single bitcoin has plunged more than 65% below last year’s all-time high of almost $ 70,000. The value of all cryptocurrencies has fallen from around $ 2.2 trillion by the end of 2021 to just over $ 1 trillion at present.

Bitcoin, the world’s largest crypto, makes up about 42% of the total market, but 2022 has been just as awful for the owners of other crypto-related assets as Coinbase. The brokerage’s share has fallen 75% so far this year. Shares of rival Robinhood have lost half their value.

There is hope that the worst for crypto may be over. Bitcoin has increased by more than 15% in the last week, and two other top cryptocurrencies have increased even more.

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Solana has risen by more than 35% in the last seven days, while ethereum, or in short ether, has risen by almost 45%. Ether, the second most valuable crypto, is widely used to fund the purchase of non-fungible tokens, or NFTs, the digital assets that have taken the trading world by storm.

Coinbase has also increased, up 9% on Monday. The software company MicroStrategy, which had almost 130,000 bitcoins on the balance sheet as of June 30, has risen more than 35% in the last five days.

The crypto comeback could be validation for the sector’s biggest supporters. At the same time, it should also serve as a reminder that the emerging market is likely to remain volatile in the foreseeable future.

Expect more volatility

“We will see a long-term recovery in the digital assets sector, but I wouldn’t get too excited just yet,” said Joel Kruger, market strategist at LMAX Group. “This is still an emerging market.”

Kruger said that the bitcoin rally has lagged behind the sharper upward movements in ether and other smaller cryptocurrencies, and remains a concern in the short term. The broader group of cryptocurrencies and stocks may not get a more meaningful improvement until there is “a healthier bounce” in bitcoin, he added.

So all the hype that bitcoin is the digital equivalent of gold is just that: hype. As an asset, bitcoin behaves much more like volatile technology stocks instead of the far more stable commodities like gold or government-backed currencies like the dollar and euro.

Investors should also consider that there may not be enough interest in crypto to justify the thousands of coins, tokens and exchanges out there. If so, only the strongest cryptocurrencies will survive and thrive.

“Crypto has seen a dotcom era-like run,” when many great ideas and companies were created, Adam Grealish, chief investment officer at wealth management fintech Altruist, said in an email. But a number of not so good ideas and companies were also launched, he added.

The same scenario is likely to apply to crypto. “With tougher markets, companies in weaker positions and with weaker business models will feel a lot of pressure,” Grealish said.

Do not tell the cryptocurrencies. The broader rally raises shares in almost all companies associated with the industry. Several crypto-mining companies, which use computers to solve complex mathematical equations to generate new bitcoins, have moved much higher in recent days.

Marathon Digital rose 21% on Monday and is up more than 50% in the past week. Riot Blockchain is up more than 40% in the past five days, while Hive Blockchain and Bitfarms are each up around 25%.

So have bitcoin, ether and top cryptocurrencies finally reached the bottom? There are some hopeful signs.

Winners and losers

Two banks that make crypto-backed loans and offer digital currency deposits, Silvergate Capital and Signature Bank, each reported earnings and revenue on Tuesday that topped Wall Street forecasts.

It also seems that the sector’s turmoil has created a shake-up of winners and losers among both listed companies and startups.

Crypto lender Celsius was forced to file for bankruptcy earlier this month. But the privately owned crypto giant FTX continues to thrive, and now has a value of $ 32 billion.

FTX recently agreed to give a line of credit to the struggling crypto company BlockFi, and the company’s billionaire boss, Sam Bankman-Fried, has talked about using FTX’s financial strength to rescue other crypto crypto companies as well.

Bankman-Fried also has a stake in Robinhood, and there was recent talk that FTX might want to buy the struggling brokerage firm. Bankman-Fried denied these reports to CNN Business.

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