The FTX collapse has sent the price of bitcoin and other cryptocurrencies down more than 60% this year… and the carnage has spread to publicly traded companies with exposure to digital assets.
the FTX Fusion it has driven the price of bitcoin and other cryptocurrencies down more than 60% this year… and the carnage has spread to publicly traded companies with exposure to digital assets.
Actions of coin baseBlock, owner of Square, major bitcoin miners Hive and Riot, crypto bank Silvergate and software company MicroStrategy, led by the crypto evangelist michael saylorThey have plummeted in the last month.
But is the worst yet to end? After all, volatility has been a constant in this still-fledgling industry. Crypto is known for huge crashes and incredibly epic comebacks.
this is not the first crypto winter, as long-time bitcoin fans can attest. There were massive fixes in 2018, the early part of 2020, and the summer of 2021 as well.
So could cryptocurrency and stock prices rebound in 2023? Some crypto bulls think so… but believe investors should have more reasonable expectations.
"It's very clear that we as an industry need to create better products," said Hany Rashwan, chief executive of 21.co, a cryptocurrency investment firm. “There has been a lot of fluff in the past bull market. People were chasing exuberance.”
Still, Rashwan said he's a bit surprised the crypto carnage hasn't been even worse.
As bad as the recent sell-off has been (bitcoin plunged more than 15% in November alone), the bitcoin price is still around $17,000. That is roughly triple where prices were during the depths of the crypto bear market in the early days of the 2020 pandemic.
“How are we getting closer to $17,000? That says something. It is indicative that people are still using crypto and trying to safeguard assets. Trust has not been shaken to the core,” Rashwan said.
Others point out that the underlying blockchain technology behind bitcoin and crypto remains strong.
“We are going to see some challenges for the foreseeable future. But we expect improvements ultimately. This will be a catalyst. There will be increasing institutional adoption,” said John Avery, strategy and product lead for crypto, Web3 and capital markets at FIS.
Avery said that he also hopes to see more regulatory clarity for cryptocurrencies in 2023. That will ultimately be a good thing.
“There is always the need to balance innovation and investor protection,” he said. “Regulation doesn't always solve all of this. But it is important.
Others point out that the rapid demise of FTX should also serve to strengthen companies that survive this crypto crash. Coinbase, in particular, could end up benefiting in the long run, even though stocks are currently taking a beating.
“FTX's rapid failure will invite increased regulatory oversight and scrutiny of the sector, which we hope will ultimately translate into clearer guidance for crypto market participants,” said Fadi Massih, vice president, financial institutions group at Moody's Investors Service. . “This would likely benefit Coinbase, given its size and more established position in the industry.”
But hopefully the problems with cryptocurrency will prove once and for all to investors that Bitcoin is not (and never will be) a replacement for the US dollar or other government-backed currencies. Cryptocurrencies remain a speculative asset. That's not a problem per se. But investors just have to know the risks.
Some have praised cryptocurrencies for their decentralized nature, ease of transaction, and low transaction costs, but even Bitcoin, the oldest cryptocurrency, remains more volatile than stocks and bonds, preventing it from being a viable store of value. ", said. Jason Pride, chief investment officer of private equity and Michael Reynolds, vice president of investment strategy at Glenmede, in a report.
Pride and Reynolds added that it is a misconception that Bitcoin can hold up well during stock market volatility. Instead, this year has shown that cryptocurrencies are not a good hedge, especially when tech stocks stall. So that also "greatly limits its use as a portfolio diversifier."
