Why is crypto crashing and will it recover?
Subhash | October 12, 2022
The Crypto Crash is likely to resume soon. When will it recover?
I read an interesting series of Tweets today about why Crypto is rubbish. This is not the first time I read something like this. The only difference is that the expert went into great detail on some of the limitations of blockchain and the need for Tokens even if a blockchain has utility. He made some strong arguments which I think is a cautionary tale for people like me. I firmly believe both blockchain and cryptocurrency have utility and all of this will play out in the next 3–5 years.
Coming back to the crypto market. There are increased fears that BTC (and other cryptocurrencies) could crash further. The simple reason is that Bitcoin prices have often (and not just during COVID) benefitted from Federal Reserve liquidity and as the liquidity dries up, BTC along with a whole host of cryptocurrencies will go down further.
There are of course two schools of thought.
- People like me, are a lot more pessimistic given the macroeconomic situation
- Traditional Crypto investors whose metrics seem to suggest that we ‘could have a pump’ soon.
My take is, the Fed will push rates higher because lower inflation is better than higher unemployment. However, when Fed pushes rates higher, the domino effect on the Global economy could be catastrophic. In other words, we are in a highly unpredictable environment where things could go bad or horribly bad. And we are not even talking about Putin-inspired Nuclear loose talk.
When will Crypto recover?
Anyone who is able to give you a specific timeline today on Crypto recovery is clearly out of their mind. It is not possible to put a date and time to this given how the data is still playing out. But here is what we know.
- The Fed will continue to raise rates until the inflation rate falls below 3 or 4%
- At that rate, we are likely to see US unemployment rise and the economy slow down even further
- This is likely to play out anywhere between the next 6 months to 18 months.
- As the data stabilizes, Cryptocurrencies will also begin a more long-term recovery.
- We will have more firm timelines as time progresses
That said, I don’t think one should wait for a recovery to invest in cryptocurrencies or any other asset class. [This is not financial advice] I personally am really not concerned about timing the market, though I understand it is important at some level.
My concern is primarily around my financial objectives and I should have a portfolio that ensures I meet my financial objectives. For example, If I have too many Goals without the money for them, I would probably invest in very high-risk assets because my best case was any way that would not be able to meet the goal (Or just give up on the objective altogether). On the other hand, I would be very wary of throwing money on risky asset classes if I needed money in say next 2–3 years. Ignore the specific examples above and here is the takeaway — Invest in Crypto or whatever works for you on the basis of your financial objectives. Dollar Cost averaging should resolve issues around Timing.
What do I like in Crypto?
Coming back to Crypto, leaving aside the permanent debate on its utility (which is important), I love Ethereum, Matic, and Luna Classic. Ethereum is like an operating system where most cryptocurrencies and Dapps reside. That said, I don’t see Ethereum recovering this year. Perhaps a faltering recovery next year. We will need more data to fine-tune those estimates.
Polygon on the other hand is a Blockchain in a rush. They have been notching up partnerships and raising capital and I love what you can do on their blockchain. Matic continues to rise and is likely to outperform most cryptocurrencies. However, it is unlikely to escape any future crashes.
Luna Classic is really the untold story of the year. A band of brothers and sisters have been working over the last 4 months to turn around a cryptocurrency that was given up for dead. It is perhaps not common knowledge but this is one of the top-performing cryptocurrencies in the last quarter. And it is not even available for trade on Coinbase. LUNC is likely to rise further if many of the community’s plans are implemented.
Do your own Research