Cryptocurrency and blockchain technology have gained popularity over the past few years, but it has also lost a lot of value in recent times, thanks to aggressive monetary policies by central banks globally and the dramatic collapse of digital coins such as TerraUSD, LUNA, and Solana. The fear of recession amid rising inflation and other weak macroeconomic indicators has also rattled investors’ confidence in riskier assets. This has led to sharp volatility in the overall crypto market, including major assets like Bitcoin and Ethereum, resulting in the bankruptcy of several crypto platforms such as FTX and BlockFi.
Investing in the crypto market has been painful this year as most of the major assets witnessed a sharp slump in prices since their all-time highs, with the total market capitalisation of all cryptocurrencies shrinking to less than $1 trillion mark, from around $2.3 trillion by end of December last year.
In the last 12 months, Bitcoin (BTC) prices tumbled 75% to around $17,000 marks from its all-time high of $69,000 in November last year. It touched a two-year low of $15,517 levels on November 21, 2022, while it hit a high of $47,457 on March 30, 2022.
Similarly, Ethereum (ETH) also took a hit of over 70% in the last one year, falling from a record high of $4,900 in November 2021 to the current level of $1,200. It hit a 52-week high and low of $4,150 and $883, respectively, during the year.
Going ahead, some experts believe that crypto markets will bounce back from the current low levels, citing ease in inflation and less hawkish policy stance by central banks across the globe. Here is experts' view on the future of cryptocurrencies and how investors should investor approach now.
According to Punit Agarwal, founder, KoinX, the year 2022 is one of those years that came with a reality check that things can’t always be great for the crypto industry. “The start of the year seemed very promising, but as the months went by, certain factors came into play that included but were not limited to the LUNA crash and the FTX collapse. Plus, the global tech economy isn’t doing the best either, which was reason enough for us to consider an ongoing crypto winter this year.”
“Even though crypto markets have had a rough year, that doesn’t mean that the industry doesn’t have a promising future. With new technologies being developed in the industry that rely on blockchain and are applied to decentralised finance, the value that these digital assets will bring is something that could be very beneficial to the industry and the people associated with it,” he said.
Shivam Thakral, CEO of BuyUcoin, says there are various macro and microeconomic factors surrounding the financial markets which have a direct impact on asset classes across the board. “FTX collapse is widely perceived as a cleansing of a crypto ecosystem where companies with weaker fundamentals are being eliminated from the market. We need to create a global consensus around the regulatory framework for digital assets,” he said.
Going ahead, Thakral expects favorable macroeconomic conditions in 2023, saying that the central banks have hinted towards relaxation of monetary policies and interest rates. “Inflation will be a key factor in deciding the fate of financial markets across the globe. The crypto market will overcome the collapse of crypto giants like FTX and move towards a more mature phase with wiser investors and healthy regulations.”
Tarusha Mittal, COO and co-founder, Dapps and Unifarm, says FTX collapse is good on the macro level for the industry, as users will yet again realise that web3 is all about decentralisation. “The companies that don't have a strong foundation and strong investments will be flushed out. Only real business models will thrive. FTX collapse is a good reminder that crypto is all about removing centralised bodies.”
Mittal further says that if contagion continues reverberating from FTX’s bankruptcy, Bitcoin has more room to fall. “Where Bitcoin goes, Ethereum typically follows a major network overhaul for the second-largest crypto by market capitalisation, some analysts are speculating that the price action of the pair could soon decouple.”
Dhruvil Shah, SVP- Technology, Liminal, says the continued rise in global inflation created selling pressure across crypto assets, including Bitcoin and Ether. However, Bitcoin remained a highly resilient digital asset throughout the year and emerged as a crusader for true decentralisation with 100% backing from blockchain investors. Even after a swing of over 60%, the fundamentals of Bitcoin remain intact, Shah added.
Marc Despallieres, Chief Strategy & Trading Officer at Vantage, says the current consensus is that Ether - the second-biggest cryptocurrency by market cap - will probably see a sharp rise in 2023. “Some expect ether valuations to increase up to $2,500 in 2023, or almost double the current price. Considering the fact ether was launched at just $0.311 a short seven years ago, the price rise has been truly phenomenal,” Despallieres said.
According to Pankaj Diwan, Co-Chair, Blockchain Working Group, IET Future Tech Panel, the recent collapse of FTX has sent shockwaves across the world and calls for an urgent action from governments across the world. The recent presidency of G20 forum by India is also being seen as an opportunity for India to create a framework for crypto regulation and evolve a global consensus, he said. “We expect the government of India to come up with a nuanced approach and make distinction between various virtual digital assets. It’s a huge opportunity for the government to send a clear signal about the support for startups and stop the migration to other regions.”