Will Crypto Ever Recover Or Will Winter Last Forever?
Bitcoin has fallen more than 50% since the start of 2022. (Photo by Dan Kitwood/Getty Images)
Key points to remember
- According to crypto investment manager Grayscale Investments, the crypto winter only started in June.
- The average crypto winter lasts four years, which means crypto cannot recover until 2026.
- Crypto is still a new and relatively untested market, which makes it much riskier than stocks.
- We’ve created a number of ways to use AI to access hedge fund-style investment strategies that include exposure to crypto.
The cryptocurrency industry has taken a hammer blow so far in 2022. It’s no surprise to anyone, but there comes a time when even the biggest crypto fans will start wondering where they should keep their “diamond hands”.
At some point, crypto investors might start looking at the red splashed all over their portfolio and thinking, “should I just sell?”
If this is you, we’re here to help.
When we look at the stock market, we have over a hundred years of history to compare. We are able to look at previous stock market crashes and find similarities from the past that closely match what is happening in the market and economy today.
This can give insight into what might happen in the future and reassure us that things are likely to change eventually and the stocks we lost money on will recover. Now, with individual stocks, that’s not always the case, but so far the overall market has always come back to beat its previous high.
Crypto does not have such a long track record. Bitcoin was invented in 2009, and it wasn’t until 2017 that it started to gain mainstream attention. During this period, bitcoin and the rest of the crypto industry have already gone through several boom and bust cycles.
So, given that bitcoin still has eight years before it can drink a beer, does the past give us any clues as to when the current crypto winter will end?
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Where is the crypto industry right now
The current Crypto run started at the start of the Covid-19 pandemic. With everyone in the world stuck at home with a lot more free time, the focus has turned to investing.
Along with memes like GameStop and the stock market in general, crypto suddenly got a lot of attention. With more attention, more purchases and more purchases usually lead to higher prices.
It’s not just bitcoin that’s been riding this wave of popularity, with alternative coins like ether
ETH
DOGE
The market has been incredibly volatile through 2021, with bitcoin dropping almost 50% between April and July. It recovered just as quickly, climbing back to nearly $70,000 before the current crash began.
At the time of writing, the price of bitcoin has fallen back below $20,000. Other parts did even worse. Ethereum now sits just over $1,600 from a high of over $4,600. Dogecoin fell from a high of $0.65 to the current price of $0.06.
moon earth
LUNA
It’s no surprise that investors worry about whether the good times will ever return.
How Long Have Crypto Winters Lasted?
The first thing we can start looking at is how past crypto winters have gone. According to digital asset fund manager Grayscale Investments, the current crypto winter officially started on June 13, 2022.
This might come as a surprise, given that Bitcoin had already fallen over 60% by then. Grayscale made this distinction to account for the rapid rise in price before the fall, performing blockchain analysis to find the point where most crypto investors held losses on their buy price.
The last major crypto cycles in 2012 and 2019 lasted an average of four years from peak to trough. Given that the current crypto winter has only started in the last few months, this could mean we are in for a long winter.
Either way, the crypto winter ended with a catalyst that increased interest and adoption in bitcoin and other currencies. In 2012, it was the arrival of the first widely used crypto exchange, Mt Gox (it didn’t end well) and the rise of the Silk Road.
This allowed bitcoin to be used as real currency to buy things. The items in question weren’t exactly over the edge, and the Silk Road was eventually shut down by the FBI. Nonetheless, it set a market precedent using cryptocurrency.
The most recent bull market started with the initial coin offering (ICO) frenzy of 2017, which saw a massive number of “altcoins” (non-bitcoin crypto coins and tokens) arrive on the market.
Some of them rose to popularity and generated big returns for early investors, many others either completely collapsed or turned out to be outright scams.
We have no way of knowing when (or even if) the current crypto winter will end, but if it follows the pattern of the past, we may not see another bull run until 2026.
Will the crypto industry ever recover?
The question, of course, is will the sector actually recover? This is a somewhat difficult question to answer, since bitcoin and other cryptocurrencies do not have fundamentals like a publicly traded company.
Shares of a company are valuable to an investor because they generate cash flow. Profits made by the company will usually, at least partially, be returned to shareholders in the form of a dividend.
This earnings can be used to analyze the fundamental value of the company relative to other companies in the same industry and to compare entire industries to others.
This is not the case with cryptocurrency. It doesn’t have a mechanism to pay out the income, without another third party involved, such as lending it to someone, like you could with Celsius. We saw how it ended.
This means that the future value of a cryptocurrency cannot be calculated on a fundamental basis, as it is based on speculation.
Of course, if it becomes more widely adopted, it will have value based on other people perceiving it as having value. This is called the “network effect”. It’s similar to how we’ve seen gold and other precious metals for thousands of years.
Gold has some use in industry, but the majority of its value comes from the fact that it is rare, and we as humans have collectively agreed for many generations that it is valuable.
Bitcoin, Ethereum and some other crypto projects have significantly increased their network effect over the past few years. Not only are more and more retail investors holding positions, but so are Wall Street firms, venture capital funds, and even some large public companies.
We are getting to the point where the crypto sector will be too much of a part of mainstream financial markets not to recover from. We may already be there, but that remains to be seen.
What investors need to know about investing in crypto
The rules for investing in crypto are really very similar to investing in the stock market, they just went to 11. It is important to understand the risks of investing in highly volatile and high risk assets like crypto, and understand that you could lose the money you invest.
It can be a minefield, so we’ve created a number of different kits that give investors exposure to crypto assets, without having to worry about trading themselves.
Our Emerging Technology Kit is one of them. It doesn’t just invest in crypto, but we use AI to allocate portfolio weightings across four verticals each week. One of these verticals is crypto, the others being tech ETFs, big tech companies, and small tech companies.
If our AI thinks crypto is a good place to be this week, it will automatically increase exposure to it. If things start to look a little more shaky, the AI reduces the position in the crypto and reweights it to another vertical.
It’s a great way to get some exposure without going all-in, and with a hedge fund-like approach to actively managing the position.
If you are looking for a different approach to making money from Bitcoin, we have created a pair exchange that can make money even if the market remains difficult.
Bitcoin has been shown to be strongly correlated to the overall tech sector. While the direction of travel is often similar, the magnitude of movement is generally greater with Bitcoin.
In our Bitcoin Escape Kit we aim to capitalize on this by implementing a pair trade that goes long Bitcoin via ETFs, and shorts the tech sector as a whole via a NASDAQ 100 inverse ETF.
This means that even if the technology continues to sell off, investors can still make money if the gap between Bitcoin and the technology narrows. This still carries a fairly high level of risk, but it’s a more nuanced approach than just hodling.
This is a sophisticated craft typically reserved for wealthy hedge fund clients, but we’ve made it accessible to everyone.
Download Q.ai today to access AI-powered investment strategies. When you deposit $100, we add an additional $100 to your account.
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