Crypto Markets: Is the Pain Over or More Bleeding?

On December 30, 2021, I made some crypto market predictions for 2022. Almost halfway into the year, how did these measure up?

I correctly predicted that bitcoin would take a beating and crypto would fare worse, but so far my predictions were far too positive.

Per CoinMarketCap, bitcoin started the year at $46,730 and as of this writing it is around 29,240. This is a drop of about $17,490, which is about 37%.

Altcoins

I predicted a 20-40% drawdown in “strong alts” while I expected a few outliers. In fact, in 2022, there have been no major positive outliers, with carnage across the boards.

Ether is down 47% and XRP is down 51% so far in 2022.

Exchange Tokens have fared the best comparatively:

• FTX’s $FTT token is down 23%
• KuCoin’s $KCS token is down 29%
• Bitrue’s $BTR is down 38%
• Binance’s $BNB token is down 42%

If “Ethereum Killers” was a thing, it certainly hasn’t looked like that so far in 2022. Some of these Layer 1 solutions that intended to compete with Ethereum appear to be much more likely to reach 0 than killing Ethereum:

• Cardano’s $ADA token and is down 66% and so is Cosmos’ $ATOM token
• Solana’s $SOL token is down 71%
• Harmony’s $ONE token is down 81%

The most spectacular collapse of the year is of course Terra’s $LUNA token, which is officially down 99.99% and technically still has a market cap of $702 million, dropping from #6 to #214 on CoinMarketCap’s rankings. In my opinion, the token has gone to 0 and is never coming back.

At Permissionless this past week, long-term industry expert Nic Carter aptly called Terra “reckless financial engineering.”

Meme Coins

I expected carnage for meme coins, and I wasn’t far off.

Dogecoin, the original meme coin, is down 51%.

It has been worse for the copycats.

Shiba Inu was the supposed Doge killer. The $SHIB token is down 65%, despite burning 42% of its supply in the past year..

The moon is in fact not safe. The name SafeMoon should be enough to deter anyone from investing, but that hasn’t stopped it from gaining a cult following on Twitter (NYSE:TWTR). Its token price is down 95% this year.

Doge Elon Mars was one of the first of many tokens to exploit Elon Musk’s name for personal profit, and the $ELON token is surprisingly down only 75% since January 1.

What Now?

Bitcoin and the crypto market dropped again last week, but I have now flipped to officially being short-term bullish on bitcoin, ether and a few of the larger altcoins.

Here is why:

1. Bitcoin has reached record correlation to the S&P 500, as noted here by CoinDesk. It’s my opinion that the S&P 500 is also near the bottom, and bitcoin will follow.
2. The USA reported that top economists expect the Fed to move the benchmark interest up to 2.25–2.50% by year end. This is actually good news because I believe that this means that the market has already priced this in. The Fed’s benchmark rate has been 0.9% since May 5.
3. Inflation declined last month, dropping to 8.3% from 8.5% in the BLS’ consumer inflation report for April. When I combine this with the above two facts, that tells me that the bleeding will slow down, if not stop for stocks and crypto.
4. As Gary Gensler noted recently, a lot of tokens will fail. However, educated investors know that bitcoin and ether are not the same as luna.

Long Term View

Regardless of the short-term, I am bullish on bitcoin long-term. The reasons for this are not complex or new.

1. Supply. Bitcoin has an immutable supply of 21 million, in fact an estimated 3.7 million bitcoin is lost and will never be recovered, leaving 17.3 million bitcoin.
2. Demand. Matched with this relatively fixed supply, the rush for investors, companies and nations to buy bitcoin will create long-term upward price pressure. El Salvador and MicroStrategy are of course well-known examples.
3. Halving Cycles. The bitcoin halving cycles occur roughly every 4 years, and this has triggered a bull run in 2012, 2016 and 2020. Another halving cycle is scheduled for 2024.
4. Censorship Resistant Money. Nation-states have been recently flexing their financial censorship muscle against other nations and against their citizens. This forces individuals and nations to consider getting and using some bitcoin.
5. Developing World Adoption. Bitcoin has shown that it has a viable use case for cross-border payments. With much lower fees and quicker transaction times (minutes versus days), bitcoin has become popular for remittances. As this adoption explodes this decade, this will cause demand (see point #2) to explode.

As the pseudonymous Satoshi Nakamoto once said:

“It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy.”

This post was originally published on https://thelatestblock.com/