The stock market has had a bleak 2022 but Bitcoin and other cryptocurrencies are not much better. As of early December 2022, Bitcoin has lost 64% of its value this year and Ethereum has lost 66%. Most of the remaining cryptocurrencies are down over 90%.
The influence of “Cryto Winter” in 2022
If you look at the period when inflation was still low and the Fed kept interest rates at zero, the situation is different now. In January 2022, Ethereum was above $3,800 and Bitcoin was close to $49,000 – and the Fed’s war on inflation is believed to be the main reason why both of these leading cryptocurrencies have fallen so dramatically. The slide of cryptocurrencies also led to bankruptcies and chaos in the industry. Will all that chaos last until the end of 2023 and when will the “crypto winter” ends.
Cryptocurrencies are also not immune to the ups and downs inherent in many asset classes. If we look at Bitcoin’s price history, we can see this clearly: In 2018, after a record rally to $20,000, Bitcoin’s price dropped 84% to $3,000. In November 2020, the Bitcoin price rebounded to nearly $17,000 then rose. In May 2021, Bitcoin fell 50%, then rose to a record high of $69,000 by year-end. Many experts believe the current drop is different, as the economic outlook is different than before.
“The ongoing crypto winter could last longer,” said David Kemmerer, chief executive officer of CoinLedger. “It is due to macroeconomic factors: inflation at a 40-year high, rising borrowing costs and political instability after Russia launched the war in Ukraine.
Because of its short history – Bitcoin launched around 2009, after the Great Recession – crypto market declines did not coincide with bear markets in the broader financial space. But things are different now. Financial markets benefited from a bull cycle that lasted from 2009 through 2021, interrupted only by a recession during the COVID-19 pandemic in early 2020. But then the wind blew. The double reverse, high inflation and the Fed raising interest rates, have pushed both the stock and crypto markets down. Risky assets like stocks and cryptocurrencies take a big hit when interest rates rise.
The higher interest rates have sucked liquidity out of the economy, and the riskiest assets suffer the most. The phenomenon that has made cryptocurrencies vulnerable is also the cause of the price of technology stocks falling.
How long will the Crypto Winter last?
To answer the question of how long the “crypto winter” will last, we need to understand how long high inflation will cause the Fed to maintain a tight monetary policy. Low inflation and falling interest rates are factors that can help cryptocurrencies.“ The most recent bear market lasted more than 2 years. We’ve only been through a year in this bear market, and the macroeconomic environment has deteriorated significantly,” said Nick Saporano, chief executive officer of Divi Labs.
A rally in any asset class will beat traditional assets like gold, stocks or real estate. Analysts say that in 2023, global economic growth will be around 2% in 2023, significantly lower than in 2022 and much lower than the 3.3% average annual rate of the previous decade’s epidemic. However, at this rate, economic output per capita will still increase slightly.
For investors in the global crypto market, as much as it has been in 2021, 2022 is a return to the previous one. Hopefully, the door to 2023 will not close with this very potential coin. Because the features of BTC or ETH and many cryptocurrencies are in the form of easy transactions, easy to store, easy to mine, and not affected by any physical impact. It is the groundbreaking creation of the new generation, also a narrow door, but could be bright to help digital currency get back on track for the future.
The impact of many negative events throughout the year is likely to continue into the new year. Many market commentators predict the domino effect will continue due to the interconnectedness of crypto companies.
The future of cryptocurrency in 2023: optimistic or skeptical?
Opinions about the future of market in 2023 by Cryptocurrency Experts
“In 2022, I have seen a number of Web2 companies accept payments in cryptocurrencies, as well as integrate an innovative form of blockchain like NFT into the service. This trend will continue, as more people become aware of blockchain. next year,” Alex Onufriychuk, leader of Corite, a blockchain-based music crowdfunding platform, told Forkast.
According to Onufriychuk, the key to the “crypto summer” – the period of recovery and acceleration of cryptocurrencies – is the adoption of mass adoption of Web3 applications by traditional Web2 companies. “As this transition accelerates, interface design and intuitive experiences will come into focus, serving more users,” – he predicted.
Contrary to the above optimistic view, some experts believe that the winter of cryptocurrencies may last for a year.
“I think 2023 will be the cold period for cryptocurrencies. During the year, this market continues to be subdued, it will take at least two years to recover,” said Alex Au, founder of asset management firm Alphalex Capital in Hong Kong, told Nikkei Asia.
According to Au, most investors will wait for a recession. They choose to store digital assets in “cold wallets”, spending the rest of the money in other areas during the economic downturn. “The market can freeze for long periods of time,” Au said.
Any chance for the “Crypto Summer”?
Countries that have so far been slow to regulate cryptocurrencies, could take concrete steps to control the market by 2023, especially as individual investors have also suffered severe losses from various incidents in 2022. The threat of contagion from the cryptocurrency sector to traditional finance is also increasingly being discussed as a reason for increased regulation. 2023 can be considered a regulatory year for the crypto market.
On the other hand, there could be important developments in the area of central bank digital currencies (CBDCs), which countries have been studying for several years. Countries have expressed their intention to compete with the cryptocurrency sector using the same technology. Thus, we could see a new front opened against crypto with CBDCs.
It is worth noting that although the negativity caused institutional investors to leave the market in large numbers in 2022, many financial giants have decided to expand their services into the crypto space. throughout the year and established many strategic partnerships in this direction. The movement of these companies over the coming year could provide a means for institutional money to go back into crypto, subject to more favorable macroeconomic conditions. The worrisome events of 2022 are likely to continue into 2023. The crypto industry may continue to come under pressure into 2023 due to lack of liquidity and contagion fears.
A rally in any asset class will beat traditional assets like gold, stocks or real estate. Analysts say that in 2023, global economic growth will be around 2% in 2023, significantly lower than in 2022 and much lower than the 3.3% average annual rate of the previous decade. epidemic. However, at this rate of growth, economic output per capita will still increase slightly.
For investors in the global crypto market, as much as it has been in 2021, 2022 is really a return to the previous one. Hopefully, the door to 2023 will not close with this very potential coin. Because the features of BTC or ETH and many cryptocurrencies are in the form of easy transactions, easy to store, easy to mine and not affected by any physical impact. It really is the groundbreaking creation of the new generation, also a narrow door, but could be bright to help digital currency get back on the track of the future.