I think the groundbreaking blockchain technology behind cryptocurrencies is the most significant and disruptive technological advance since the Internet. Allows us to replace the current multi-trillion-dollar economic systems with decentralized systems that are freer, fairer, and speedier than the current ones.
The blockchain is a game-changer in the field of finance. Many tasks remain unfinished of all things. We’re on the road to that future with cryptocurrency. Patient investors will profit significantly from cryptocurrency over the long haul.
The near-term picture for cryptos worries me despite my long-term bullishness.
That’s because the crypto market has had an incredible run in the last several years. Just 21 months ago, when the Covid-19 outbreak first broke out, the whole crypto market was valued at roughly $140 billion. In less than two years, the cryptocurrency market has grown by 15 times to $2.1 trillion.
Investing in stocks isn’t a one-way street. Cryptocurrencies, in particular, do not rise in a straight line. There has been a long history of extreme volatility in the cryptocurrency market, which has seen values increase and fall by thousands per cents in the same year.
It would be silly to suppose that an asset class with this much volatility after a 15X increase in two years is not ripe for a short-term correction.
A correction in 2022
After excessive stimulus and liquidity, the Fed (Federal Reserve) aims to raise rates three times in 2022. Financial markets tend to be less risky when the Fed increases interest rates. Investing in crypto is risky. As a new rate-hiking cycle begins, investors may be less interested in cryptos.
Inflation will drop sharply in 2022, according to the bond market. Despite three Fed rate rises next year, the 10-year Treasury yield is below 1.4%. If inflation cools next year, fewer investors will seek inflation hedges, which might hurt crypto prices.
And near-term trend lines are negative. Bitcoin prices fell below their 50-, 100-, and 200-day moving averages for the first time since May 2021. Technical assistance looks to cost $42,000. A move toward that level seems plausible.
Overall, we’re near-term crypto bearish. The crypto markets may suffer in the following months.
Long-term bulls like this. Weakness now is an opportunity later. We think strong adoption patterns, altering regulation, better technology, and solid investment will propel the crypto markets in the next 12 months, three years, and ten years.
Long-term bulls like this. Weakness now is an opportunity later. We think strong adoption patterns, altering regulation, better technology, and solid investment will propel the crypto markets in the next 12 months, three years, and ten years.
A Recession Won’t Kill Cryptocurrency
Two consecutive quarters of decreasing GDP define a recession, say most economists. According to this definition, the U.S. hasn’t had a recession since the “Great Recession” from December 2007 to June 2009. Due to inflation, the conflict in Ukraine, and Coronavirus supply chain concerns, the economy is under stress. Stress is probably the last barrier.
Satoshi Nakamoto designed Bitcoin after the “Great Recession” Cryptocurrency hasn’t seen a recession. Satoshi invented Bitcoin to reduce our dependency on banks (including central banks), whose irresponsible lending practices caused the property market meltdown. National Council for the Social Studies published a fantastic description of the housing market crash. Investors ignored fundamentals to seek short-term profits, the Federal Reserve adjusted interest rate policy, and the market had excessive leverage. Can cryptocurrencies survive a recession?
Bear case
Many believe cryptocurrency’s $1 trillion industry is here to stay. “Too big to fail” has been debunked several times. Given that cryptocurrency is unregulated primarily and many government officials disapprove of it, it’s unlikely to get governmental help in the event of a significant crash. Terra Luna’s fall in less than a week exposes the cryptocurrency market’s weakness.
Leverage might also cause cryptocurrencies to crash. Leverage is using debt to boost investment returns (or losses). Bitcoin leverage hit a record high in January, according to Cointelegraph. Many exchanges have 10x, 20x, and 100x leverage. Investors will liquidate their holdings if prices drop significantly, sparking a big sell-off. This might generate a ‘death spiral’ of selling. Many have compared the usage of leverage in crypto markets to improper lending practices that led to the housing market crash.
Crypto markets can’t control outside economic influences. The Federal recently boosted interest rates to assist the economy and manage inflation. The Federal Reserve balances inflation and economic growth. Lower interest rates mean more cash in the economy but increase inflation. Higher interest rates boost company and consumer borrowing costs, lowering consumption. Rate rises might trigger a recession. In a recession, people may need to sell their crypto assets to pay for food and housing.
Bull Case
Crypto should withstand a recession despite the bear case’s fears. This article focuses on the U.S. economy, yet Bitcoin is a worldwide asset. Chainalysis published The 2021 Geography of Cryptocurrency Report, which details cryptocurrency adoption by nation, region, platform, etc. Bitcoin is El Salvador’s currency. This worldwide popularity means that if one country’s economy crashes, cryptocurrencies will have a use case in another.
Web visits to DeFi platforms by countries
The economy hasn’t halted blockchain’s growth. The economy’s cycle goes quicker than start-up investment. A venture capital fund invests in early initiatives, which need time to develop and launch. Then, the project’s total worth is established. According to The Economic Times, $10 billion was invested in crypto markets in the first quarter of 2022. Despite the economic slump, projects are still being developed. As long as the money flows, we’ll see new ventures. Despite more regulation and an unpredictable economy, VCs continue to invest in cryptocurrencies.
Cryptocurrency’s potential is key to surviving a recession. Crypto isn’t simply for peer-to-peer payments anymore. DeFi, NFTs as art, gaming, and Polygon Nightfall are current use cases for cryptocurrencies. Many additional use cases have been proposed but not widely adopted. Cryptocurrency has enormous potential as housing deeds, digital identities, and decentralized storage. The bitcoin market has entered numerous businesses, reducing the possibility of a collapse.
This dip looks good
But we’ll purchase this dip cautiously. Cryptos are the future, but the market is packed with bad investments.
A recent analysis by Chainalysis indicated that investment frauds using digital currencies, in which cryptocurrency producers construct a fake project, earn money through coin sales, and then dump all their tokens on uninformed retail investors, will be $2.8 billion industry in 2021.
And “pup coins” are worse. It claims to have been worth few do. Many fail.
90% of cryptos will fail, I’d estimate. It’s common in developing tech marketplaces. Dot-com bubble of 1999-2000. Dozens of online firms died.
In conclusion
Recessions hurt most markets and sectors. Given its legal ambiguity and youth, cryptocurrency may suffer more than other sectors. The underlying technology and its application cases will enhance the lives of companies and people. It’s hard to see all this vanishing owing to an economic slump.
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