Crypto Bear Market?
Crypto has taken a significant hit. With almost 500 billion taken off the global crypto market cap, investors need to reassess their positions. Some prefer large crypto allocations, and some have 5-10% weighting in crypto. There needs to be a couple of questions for current crypto investors. Why did I invest in crypto? What is the underlying asset? These questions need answers.
The largest coin by market cap, Bitcoin, is roughly worth 1 trillion dollars as the primary coin with the most institutional interest in Bitcoin is the bellwether. Coins move primarily because Bitcoin moves. This is because Bitcoin makes up so much of the market. Most of the 500 billion wiped off of the global crypto market cap were Bitcoin. Ethereum is the next big competitor, and below that are multiple altcoins in the 30 billion range. Granted, altcoin prices are depressed compared to the unicorn 50-100 billion-dollar valuations in late 2021. Overall, crypto valuations need to be addressed on the number of coins outstanding and current supply. Bitcoin is an excellent store of value because soon, demand will become higher than supply. Bitcoin is becoming harder to mine due to increased energy cost due to prof of work transaction verification. Overall even though Bitcoin is in a bear market, there are many benefits to the token especially s a store of value.
With interest rates rising and the fed tightening its balance sheet, growth assets have been hit hard. The hawkish nature of the fed will be harmful to the future of cryptocurrencies. Especially coins that have seen massive declines. The overall macro picture is fundamental to the future of Bitcoin. Currently, whales move the market, which should cause a steady price base. This is one vertical that Bitcoin can’t match with other coins because Bitcoin is primarily more centralized due to whale ownership.
Ethereum has a market ap of roughly 300 billion dollars and is the second-largest coin by a wide margin. Ethereum has development applications and is the bellwether for blockchain technology. While coins such as Solana and Avalanche offer faster speeds and higher volume Ethereum is the most widely adopted currency. Ethereum’s unique DAOs, NFTs adoption, and much more, Ethereum is well placed to scale regardless of price.
All cryptocurrencies move in line with Bitcoin. Even with the development applications, Ethereum may continue to depreciate. Coming off of 500 billion in market cap, there has been a significant shift in Ethereum’s price. With web3 technologies becoming more critical and crypto adoption happening around the world, there will be increased interest ad therefore increased demand.
Web3 is not going away. Crypto is not going away. However, there may be rapid declines in these assets. This is not secular to the cryptocurrency market. It is a broad brush of growth assets that have been cut in half and then cut in half again, leading to massive declines. I remain bullish on cryptocurrencies as a development platform but as a store of value. The thesis is rapidly becoming less valid.