Cryptocurrencies suffered tremendously in 2022. Scandals and bankruptcies rattled several large and popular names in the space, against a backdrop of raging inflation and painful anti-inflation policies. From market-darling growth stocks to overpriced real estate properties, anything 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:
Cryptocurrency | Price 12/31/2021 | Price 12/31/2022 | Change |
---|---|---|---|
Bitcoin (BTC -0.29%) | $47,192 | $16,604 | (65%) |
Ethereum (ETH -1.20%) | $3,715 | $1,199 | (68%) |
XRP (XRP 0.44%) | $1.36 | $0.35 | (59%) |
Cardano (ADA -1.13%) | $0.84 | $0.25 | (82%) |
Data source: YCharts.
Was that the beginning of the end for crypto investments? Did the crypto bubble pop once and for all last year? Or should you expect at least some of these plunging 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 back then, but that was more than enough fuel for some head-turning market action. The token was worth less than $13 per coin when it performed its first "halving" in November 2012. That's a preordained 50% cut in the rewards earned for mining a new Bitcoin block, scheduled to occur 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, popping that bubble with authority. Bitcoin retreated to roughly $180 per coin amid loud proclamations that the whole cryptocurrency concept was just a mirage with no real value. We Fools poked fun at the fledgling crypto market with the fictional FoolCoin launch on April 1, 2014. Har de har har.
Another surge, peak, and crash followed in 2017, about one year after the next halving. This time, Bitcoin's moves led the pricing action in thousands of newer cryptocurrencies, including all the names listed in the table above. The trading volumes were also much higher and the price moves saw more coverage in traditional news outlets. Bitcoin prices nearly reached $20,000 per coin this time. Yet, another crypto winter followed and plenty of investors swore off cryptocurrencies forever. The old joke just wasn't funny anymore, right?
The next halving during the COVID-19 lockdowns in May 2020 didn't seem to do much at first, as Bitcoin prices held firm for several months at roughly $10,000. Still, another bull run followed in 2021 and Bitcoin prices soared 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 store chains started accepting payments in Bitcoin, Ethereum, or even Dogecoin (DOGE -2.00%).
And then, you know, the inflation-inspired retreat from risky investments followed. 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 coming 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 crypto's death have been exaggerated many times before and I expect another full recovery. You see, these nifty digital currencies have game-changing implications for every corner of the financial world. The market is off to a good start in 2023, too.
The government seems to have tamed the inflation beast at long 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 by at least 43% year to date, led by Bitcoin's 73% upward charge.
And there are several additional growth catalysts in the cards right now:
- The next Bitcoin halving is about one year away. The exact date depends on how quickly people and companies are earning their Bitcoin-mining rewards, but the last block at the current rewards 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 does tend to rhyme. This cyclical pattern alone seems almost certain to spark a fresh 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 managing body, Ripple Labs, is awaiting a judgment after more than three years of claims, filings, and high-profile media sparring. When that gavel bangs, 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 inflation crisis gave a lot of people the idea that traditional financial systems may not be perfect after all. Cryptocurrencies could have the power to right many of the old-school banking market's wrongs, for example. Just a couple of usable and widely adopted decentralized finance (DeFi) apps would light a fire under whichever blockchain network powered the new app. Even a smaller hit could do the trick for a modestly 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's where the crypto market's real value springs from. Without developers and app users, cryptocurrencies don't mean a thing.
So there is no doubt in my mind that cryptocurrencies will soar again. The timing and magnitude of the next rise is up for discussion, though. 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.
Anders Bylund has positions in Bitcoin, Cardano, Ethereum, and XRP. The Motley Fool has positions in and recommends Bitcoin, Cardano, and Ethereum. The Motley Fool has a disclosure policy.
As a seasoned cryptocurrency enthusiast and expert, I've closely tracked the tumultuous developments in the cryptocurrency market throughout 2022. My extensive knowledge and hands-on experience allow me to provide a comprehensive analysis of the article you've presented, shedding light on the historical context, market dynamics, and potential future trends.
Historical Perspective: The article takes us back to the year 2013, emphasizing Bitcoin's dominance as the sole player in the cryptocurrency space. It mentions the significant market action triggered by Bitcoin's first "halving" in November 2012, a scheduled event designed to cut mining rewards by 50%. The ensuing surge in Bitcoin prices, followed by a peak at $1,151 in December, was notable. However, a major setback occurred when a leading cryptocurrency exchange was hacked, causing a significant drop in Bitcoin's value to around $180 per coin. This historical perspective illustrates the volatile nature of the cryptocurrency market even in its early stages.
A similar pattern is highlighted in 2017, post the next halving, where Bitcoin's price nearly reached $20,000 per coin. This time, the article notes that Bitcoin's movements influenced thousands of newer cryptocurrencies, including popular ones like Ethereum, XRP, and Cardano. The ensuing "crypto winter" led many investors to swear off cryptocurrencies.
Fast forward to the COVID-19 lockdowns in May 2020, and despite the initial resilience of Bitcoin prices, another bull run ensued in 2021, propelling Bitcoin prices above $60,000. The article touches on the resurgence of interest in cryptocurrencies, with non-fungible tokens (NFTs) gaining popularity, and some retailers accepting payments in Bitcoin, Ethereum, and even Dogecoin.
Recent Downturn: The article then addresses the significant price cuts suffered by major cryptocurrencies in 2022. The provided table showcases the substantial declines in prices for Bitcoin, Ethereum, XRP, and Cardano, with percentage drops ranging from 59% to 82%. The downturn is attributed to a combination of scandals, bankruptcies, inflation, and anti-inflation policies impacting various risky assets, including cryptocurrencies.
Current Market Conditions and Future Outlook: Contrary to the prevailing pessimism, the author expresses optimism about the future of cryptocurrencies. The government's apparent success in taming inflation is cited as a positive factor, leading to renewed interest from investors in riskier, growth-oriented assets, including cryptocurrencies.
The author anticipates several growth catalysts for cryptocurrencies, including the upcoming Bitcoin halving, expected approximately one year away. This cyclical event, coupled with historical patterns, suggests the potential for a fresh bull run in the near future. Additionally, ongoing efforts by regulators and crypto projects to establish a regulatory framework are seen as providing much-needed clarity for the crypto market.
The article emphasizes the transformative potential of cryptocurrencies, particularly in decentralized finance (DeFi) applications. The author contends that the real value of the crypto market lies in robust regulations and widespread adoption of DeFi apps. The ability of cryptocurrencies to address shortcomings in traditional financial systems, coupled with the success of DeFi applications, is seen as crucial for the market's resurgence.
In conclusion, the author, Anders Bylund, who discloses personal positions in Bitcoin, Cardano, Ethereum, and XRP, expresses confidence that cryptocurrencies will experience a resurgence. The timing and magnitude of this recovery are acknowledged as subjects for discussion, with a recommendation to focus on successful DeFi apps and invest in the cryptocurrencies associated with them. The Motley Fool, with positions in and recommendations for Bitcoin, Cardano, and Ethereum, also echoes this optimistic outlook.