They’re calling it the worst bear market since 2018, in terms of sentiment if nothing else. Is it a fair comparison? Well, we don’t believe so.
Consider: in early 2018, crypto investors found themselves wondering whether the market would be wiped out completely. The entire crypto market, back then, was comparable to the most speculative of altcoins – like Dogecoin – in a sense. Lots of people were left wondering if the thing they invested in had any value, or if it was even real. Would the founders of cryptocurrency and blockchain technologies, the Satoshi Nakamotos and Vitalik Buterins, just give up? Was the whole cryptocurrency ecosystem a fad?
We’ve come a long way since early 2018, not just in terms of prices.
This time is different, especially for cryptocurrencies
This time, we have a better idea of why people are selling. Profit-taking aside, in 2018, sellers were mostly concerned about getting out of what looked like rapidly-collapsing Ponzi scheme.
Today, the selling has been brought on by the Federal Reserve. Its largest interest rate hike in two decades has caused a lot of FUD, and we’re seeing it across the financial markets. Everything from a decline in risk tolerance to serious recessionary concerns have been on display over the last couple of weeks.
While many crypto investors don’t want to remember the bear market of 2018, others will find solace in doing just that. As we’ve covered abundantly, throughout that entire time, while mainstream media was screaming bust and seemed to be actually rooting for crypto to fail – the whole time, capital was actually flowing in.
The whole time bitcoin fell from $19,000 to $3,000, massive investments were made. Huge infusions of cash flowed into the cryptocurrency space.
The most important thing to remember is that, back then, a reasonable crypto investor could’ve been fooled into thinking the entire market was a fad, digital Beanie Babies, virtual tulip bulbs.
Venture capital was not fooled.
Right now, there is an even tighter link between sentiment and capital infusion.
“$1.22 billion wiped out from the crypto market in a day” is the trending headline.
Buried deep beneath the shrieking headline, careful readers note the story of FTX, a $32 billion crypto exchange, applying for a New York trust charter. Two weeks ago, New York’s Mayor said at a crypto conference that he doesn’t like having to deal with this charter. As far as he’s concerned, crypto firms should have an easier time establishing a foothold in New York.
Read on and you’ll note the report that U.K. money management firm Fasanara is raising $350 million for a crypto and fintech venture capital fund. According to its CEO, what the mainstream media called the end of crypto forever is nothing more than a dip – an attractive opportunity to invest.
In fact, there’s so much good news, we have to ask – what’s driving all the selling?
Who’s dumping crypto?
Could there more to this wave of selling than meets the eye? Depends on who you ask.
Carlos Gomez, chief investment officer at Belobaba crypto hedge fund, said that large bitcoin and ether investors, the “whales,” might be trying to shock-and-awe individual investors and less-confident institutional investors out of the market completely. Gomez speculates this would drive prices into “historic buy zones” the whales so love to fatten themselves on.
So which investors are folding? Those without confidence. Without a long-term time horizon. Likely, speculators and day-traders are falling victim to the FUD.
But one segment of the crypto space that hasn’t been capitulating are those with virtual assets in a digital IRA. Retirement accounts are, for most people, geared toward long-term growth. As we like to point out, the investor who bought and held bitcoin at the peak around $19,000 in 2017? That person, well, this horrific bear market, to them, is still profitable.
That might not be much comfort to those who bought bitcoin at $65,000 (even those who bought a couple weeks back, in the $40,000 range, might have doubts). Again, let’s look to history.
In 2018, no one knew whether the crypto market would recover – let alone when.
These days, if companies like FTX are indication, or venture capital firms like Fasanara are savvy, or money managers like Gomez are any indicator… Well, an awful lot of money is bullish long-term. They don’t need to be told that the market will still be around in a few weeks.
Long-term crypto investors are undoubtedly enjoying this display of market maturity and development. The rest are, one assumes, contributing to the wealth of long-term crypto investors by giving them those “historic buy zones.”