The spectacular implosion of cryptocurrency exchange FTX, a so-called unicorn startup that was recently valued at $32 billion, is just the latest bit of bad news for investors in bitcoin, ethereum and other digital assets. But 2022 was already an awful year for crypto before the FTX-Binance soap opera.
Bitcoin prices are currently hovering around $16,500, down from a level of $20,000 just a week ago. Still, even at $20,000, that was a far cry from the price of just north of $46,000 that bitcoin was trading at on the last day of 2021.
It turns out that investors who were hoping that rising interest rates and higher levels of inflation would be good for so-called alternative assets like cryptos and gold have been in for a rude awakening this year.
They’ve gotten hit just like stocks and bonds, proving there really is no place to hide in a market where worries about rate hikes and recession reign supreme.
Gold prices have fallen about 6% this year, and the price of the yellow metal is not far from the lows it hit at the beginning of the Covid-19 pandemic in early 2020. Gold, like bitcoin, then surged in the latter part of 2020 as a sort of safe haven trade.
So can gold and crypto bounce back? The strength of the US dollar has hurt both precious metals and cryptos. Why buy gold or digital assets when the greenback is proving to be the king of currencies?
Some experts are hopeful that the worst could soon be over for bitcoin and other cryptocurrencies.
Bitcoin has historically had big swings up and down
This isn’t the first time that there has been a so-called crypto winter. Bitcoin prices have been notoriously volatile over the past few years, but they have still done better than many major stock market indexes.
Just look at bitcoin prices since the summer of 2020. They’re up more than 80%…even though it has been far from a smooth ride. The Nasdaq, by way of comparison, is only up about 1% from July 2020 levels.
“Bitcoin and ethereum went straight up and down but they have still gained a lot from mid-2020. Over that longer time horizon, digital assets are still outperforming tech stocks,” said Jeff Dorman, chief investment officer at Arca, a firm that specializes in crypto.
The crypto crash has also led to a massive plunge in the shares of publicly traded companies with ties to bitcoin, such as Coinbase, crypto mining firms Hive (HVBTF) and Riot (RIOT) and bitcoin bank Silvergate (SI).
Overreaction in the broader crypto sector?
Some analysts think that it’s a mistake though to punish the entire crypto industry because of the problems at FTX. The near-collapse of FTX, one of the largest cryptocurrency exchanges, has prompted questions of contagion.
“While we acknowledge that the FTX saga could weigh on the crypto space in the near term, we also believe the sell-off in [Silvergate] shares…reflected significant misunderstanding of the mechanics of the company’s platform,” said Mark Palmer, head of digital asset research at BTIG, in a report.
One venture capitalist who focuses on bitcoin and crypto assets agreed that FTX’s problems won’t derail the entire digital assets universe.
