19/05/2022
MARKET UPDATE
Crypto markets shed $1 trillion this month. Are there any silver linings?
In the last month, crypto has lost a staggering $1 trillion in market cap and the S&P 500 index has fallen to lows not seen since early 2021.
Global markets of all kinds have been battered by runaway inflation, rising interest rates, and geopolitical turmoil — with crypto markets experiencing some special woes due to the meltdown of the so-called “algorithmic stablecoin” TerraUSD. But just how severely have major sectors of the crypto market — like BTC, DeFi, and NFTs — been impacted? And are there any silver linings? Let's dig in.
Bitcoin prices have fallen for seven consecutive weeks, a new record. BTC dropped to nearly $26,000 last Friday (before hovering near $30,000 on Tuesday), a decline of around 60% from November’s all-time high. Putting that figure into historical perspective, it’s close to the 62% decline that BTC experienced in the early pandemic panic of 2020 — but well short of the 80%-plus selloff the cryptocurrency saw during the 2018 bear market.
ETH prices have been hit even harder — they’re down around 37% for the month, compared to around 24% for BTC. Across the broader Ethereum economy, around $90 billion has flowed out of DeFi applications that run on the Ethereum blockchain since the November peak — leaving around $70 billion today.
NFTs have also seen major declines, with sales volumes for the week ending Sunday down nearly 65%. The highest profile NFT ecosystem saw an equally dramatic shift in momentum this week: Bored Ape Yacht Club sales slid nearly 64% and sales of BAYC virtual real-estate in the form of Otherdeeds shed more than 90%.
Who is “buying the dip,” and who thinks prices have further to fall? According to a recent CoinShares report, investors took advantage of low prices this week to buy around $300 million in BTC. But some veteran traders recommend taking a longer view. Speaking to CNBC, legendary value investor Bill Miller said that he recently sold some of his BTC to meet debt obligations but remains strongly bullish over the longer term: "I’ve been through at least three declines of over 80%.
… I haven’t heard a good argument yet why anybody shouldn’t put at least 1% of their liquid net worth in bitcoin."
What about those silver linings? During the 2018 crypto winter, the conventional wisdom on Wall Street was that BTC was a joke. Now, it's hard to find a major financial institutional that doesn’t offer some kind of crypto product — and that trend shows no signs of slowing.
This week, Japanese investment-banking giant Nomura announced a new 100-person unit devoted to Bitcoin, DeFi, and NFTs; new BTC and ETH exchange-traded funds launched in Australia; and Brazil’s largest digital bank began offering BTC trading to customers (and plans to invest 1% of its treasury in the cryptocurrency).
Meanwhile, Bitcoin’s global mining power continues to surge toward all-time highs, indicating that miners are optimistic about the future.
Why it matters… There have been five major market resets since the crypto era began with Bitcoin’s launch in 2009. Each time, crypto has emerged stronger. Down cycles provide space for developers to innovate, with the period following the 2018 crash helping foster DeFi, NFTs, Ethereum alternatives, stablecoins and more.
While no one can say what will happen in the future — or even whether prices are beginning to recover or are still on their way down — investors who have taken the long view with crypto have historically been rewarded.
(Originally shared via Coinbase)
