While 2022 was a bad year for stocks, it was absolutely abysmal for cryptocurrencies.
The S&P 500 is on track to end the year down about 18%. The DAX was also hit hard with a loss of around 12%. But things are even bleaker for Bitcoin and other major cryptocurrencies.
So far for the year, BTC is down 64% and Ethereum (ETH) is down 68% (as of December 21, 2022). Both cryptocurrencies are even further away from their all-time highs. Dragging the risk curve lower, most other major altcoins are down over 90%. Solana (SOL) was particularly hard hit with a loss of 92.5%.
As recently as January 2022, Ethereum was worth around $3,800. Bitcoin even traded at $48,000.
The turnaround in interest rates in particular is one of the reasons the two major coins have fallen so much. When inflation rates suddenly rose, US central banks and the European Central Bank were still talking about “temporary inflation”. However, as 2022 has shown us, inflation is more of a medium to long-term challenge.
However, things have also been problematic in the crypto industry over the past twelve months. Many crypto companies have had to file for bankruptcy. Frauds like FTX’s have further weakened the market.
How long will the crypto winter last?
Boom and bust cycles are nothing new for cryptocurrencies. A quick look at the price action of Bitcoin – the benchmark for the entire industry – shows this clearly:
In 2018, BTC fell to $3,000 after the cryptocurrency surged from $1,000 to $20,000 in a matter of months.
In November 2020, Bitcoin was then worth around $17,000 again and its value rose almost uncontrollably until April 2021. In May 2021, Bitcoin fell by 50% before reaching a new all-time high of almost 69 000 dollars on November 9, 2021.
Although there have been periods of heavy Bitcoin price losses before, many analysts believe that this time will be different. Because for the first time, Bitcoin must prove itself in an already struggling financial market.
“The crypto winter could last longer this time,” says David Kemmerer, CEO of CoinLedger. “This is due to macroeconomic factors: 40-year highs in inflation, rising borrowing costs and political instability following Russia’s invasion of Ukraine.”
So far, downturns in the crypto market have not coincided with a bear market in the financial world. The Bitcoin protocol went live on January 3, 2009 – shortly after the start of the Great Depression.
The financial markets had a long bull market from 2009 to the end of 2021. This was only briefly interrupted by the Covid 19 pandemic at the start of 2020. Compared to the lows of March 2009, the value of the stock market at the start of 2022 was seven times greater.
But the twin headwinds of high inflation and Federal Reserve rate hikes have delivered a double whammy to the stock and crypto markets. Risky assets like stocks and cryptocurrencies suffer when interest rates rise.
This is because higher interest rates drain liquidity from the economy. The riskier an asset is, the harder it is hit by high interest rates. When interest rates rise, it is no longer as easy for businesses to invest with debt capital. Growth is slowed.
In addition, there are now less risky ways for investors to generate interest again – for example with a term deposit account. As a result, they invest less in risky assets when interest rates rise.
The same phenomenon that harms cryptocurrencies also drives down the value of tech stocks. Meta (-67%), Netflix (-52%) and even Apple (-22%) also lost massively in value in 2022.
To answer the question of how long the crypto winter will last, you need to know how long high inflation will keep the US Federal Reserve from raising interest rates. Easing inflation and lower interest rates are the only things that can help cryptocurrency. The measures taken by the European Central Bank (ECB), on the other hand, have little to no impact on the crypto market. The United States continues to set the tone here.
“The last bear market lasted more than two years. We’ve only been in this year for a year and the macroeconomic climate is significantly worse,” said Nick Saporano, CEO of decentralized payments provider Divi Labs.
Bitcoin Predictions for 2023
At the end of the year, the Bitcoin price was around $16,800. Driven by the bankruptcy of FTX, it could fall further in the coming months. Even Cathie Wood, CEO of Ark Invest and a well-known bitcoin advocate, acknowledges that FTX could see major financial institutions exit cryptocurrencies in the near future.
Despite sticking to her BTC prediction of $1 million by 2030 in a Bloomberg interview, Wood said, “The only thing that’s going to be delayed is maybe institutions will take step back and say, ‘Okay, we really understand that?
Due to the difficult starting position, a price drop to around $10,000 in 2023 is not that far-fetched.
JPMorgan Chase & Co. analysts agree that the bottom has not yet been reached. The bank sees bitcoin bottoming at around $13,000, with the possibility of a “margin call cascade” in the market following recent events.
Strategists also use Bitcoin’s production costs to predict how far prices could drop. “Right now, that production cost is $15,000, but it’s likely to come back down from the lows of $13,000 seen over the summer months,” the JPMorgan team said in a statement. .
Bitcoin production costs primarily mean the energy costs incurred while mining Bitcoins. However, there is always the cost of personnel and materials.
Ethereum Prediction for 2023
Where Bitcoin goes, Ethereum usually follows – at least it has so far.
Following the Ethereum merger in September 2022, the pair’s price action may soon decouple. The merger was a major update to the Ethereum network. Ether coins like BTC were mined. Now the proof-of-stake consensus mechanism comes into play. This makes Ethereum significantly more environmentally friendly and should help reduce fees in the long run.
“ETH has yet to benefit from the recently launched proof-of-stake merger,” says Kemmerer. “Part of this is due to the crypto winter”
Kemmerer thinks the cryptocurrency could hit $2,500 in the next six months. This is a fairly optimistic assumption. The fact is that the developments that determine the Bitcoin price also have a significant impact on the Ethereum price. A possible rise in the price of Ethereum therefore also depends on the macroeconomic situation.
If this does not improve, Ethereum is likely to fall further. Ethereum had already fallen below $1,000 in June. A three-digit price would therefore not be surprising.
Other cryptocurrencies in sight in 2023
As bad as Bitcoin and Ethereum fared in 2022, the situation was just as bad for other speculative altcoins.
Most altcoins have been hit much harder than bitcoins. As a result, most investors are likely to be disappointed with the development of alternative cryptocurrencies.
Many altcoins struggle to establish themselves during bull markets, a task that proves even more difficult given the reduced liquidity in the market.
Until Bitcoin and Ethereum recover, altcoins will continue their downward trend. And just like the bear markets of old, many of them will cease to exist altogether. In 2022 alone, more than 900 cryptocurrencies have been declared de facto “dead”. This is according to data from cryptanalytics website Coingecko.
An even more interesting case for 2023 is that of stablecoins.
Crypto exchange Binance delisted several stablecoins in September, including USD Coin (USDC), the fifth-largest cryptocurrency with a market capitalization of $43 billion. Circle, the originator of USDC, announced shortly after that it would launch a stablecoin on Solana (SOL) in the first half of 2023, supposedly backed by the euro.
Some analysts speculate that competition may soon become even fiercer. This is due to the growing number of state-sponsored stablecoin projects known as central bank digital currencies (CBDCs).
The Bank of Japan is running a pilot project with major banks in early 2023. Turkey has even announced that it will launch a stablecoin next year. Many other countries will do the same. One of them is far ahead of all the others: China.
So far, the development of CBDCs in China has been limited to local areas, but that may change with wider adoption next year. And the European Central Bank has long since started working on a digital euro.
For current stablecoin issuers like Tether (USDT), Circle, and Binance, this means competition is heating up.
“Stablecoins are in a tough spot as there is no doubt that the emergence of CBDCs will eat away at their market,” said Richard Gardner, CEO of fintech firm Modulus Global.
The stablecoin market is just as difficult to predict as Bitcoin price predictions. Ethereum or any other cryptocurrency.
One thing is certain: the crypto sector remains very risky. Therefore, you should never invest money in cryptocurrencies that you need elsewhere. Instead, we recommend our step-by-step guide to learning how to invest money.