As Cryptocurrencies Struggle, One Aspect Of The Asset Class Remains Bullish
Andy Hecht | Mar 17, 2022 19:29
This article was written exclusively for Investing.com
- Cryptos remain under pressure
- Bull or bear market: One aspect is perpetually rising
- Number of tokens and growth rate is staggering
- Asset class plagued by scams
- Caution and prudence: Risk-reward means a total loss is possible
The last time a major war in Europe divided the world was in the 1940s. The last time inflation gripped markets was in the 1970s, and prices soared. In early 2022, after decades of peace and low inflation, both hazards mentioned above have come back with a vengeance. Bear in mind though, in the 1940s and 1970s, there were no cryptocurrencies, global assets that can transcend borders.
The global pandemic required a massive central bank liquidity program and unprecedented levels of government stimulus to stabilize the economy. The swollen money supply and other pandemic-related factors lit an inflationary fuse. Even as inflation rose steadily over the past months, the geopolitical temperature escalated as well.
In early February, in a watershed event, Russian President Vladimir Putin and Chinese President Xi Jinping met at the opening of the Beijing Winter Olympics and agreed to a $117-billion financial deal and, more significantly, a “no-limits” mutual support arrangement. Less than three weeks later, after the Olympics, Russian troops invaded Ukraine.
Russia considers Ukraine part of western Russia, while the U.S., Europe and other allies as well as Ukrainians, believe Ukraine is a sovereign nation in Eastern Europe. Meanwhile, China considers Taiwan a part of mainland China, while the U.S. and allies disagree and support Taiwanese independence.
With the world facing perhaps the most significant geopolitical threats since World War II, along with the erosion of fiat currency’s purchasing power and a European refugee crisis, many market participants are likely to turn to cryptos. However, digital token prices remain far below the record highs seen in November 2021.
h2 Cryptos Remain Under Pressure/h2As of Mar. 16, the leading cryptocurrencies continue to suffer from the bearish key reversal trading patterns that occurred on Nov. 10, the day Bitcoin and Ethereum reached record highs.
Source: CQG
As the chart highlights, March Bitcoin futures fell from $70,515 on Nov. 10 to $33,160 on Jan. 24. At the $40,875 level at time of publication, the leading cryptocurrency remains a lot closer to the recent low than the record high.
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Source: CQG
March Ethereum futures fell from $5,013.75 on Nov. 10 to $2,194.50 on Jan. 24. On Mar. 17 at $2,774 they remain closer to the late January low then the token's all-time high.
Meanwhile, Bitcoin and Ethereum have both made higher lows since late January, as the markets digest and consolidate the significant price corrections.
The overall market cap for the asset class as a whole fell from the $3-trillion level in November 2021 to $1.734 trillion in mid-March.
h2 Bull Or Bear Market: One Aspect Is Perpetually Rising/h2Cryptocurrencies have experienced extremes, as bullish periods caused price explosions, and corrections have been implosive.
However, regardless of the direction of prices and the overall market cap, right now, the true bull market for the asset class is in the number of new cryptos coming to market. That number continues to rise every day, an acceleration that's continued for more than a decade.
As of Mar. 15, 18,234 cryptocurrencies populated the asset class. The number was higher than on Mar. 14, and will likely be higher on Mar. 18.
h2 Number Of Tokens, Growth Rate Is Staggering/h2I began keeping track of the number of cryptos listed on CoinMarketCap in 2019. The growth rate has been more than impressive:
- At the end of Q1 2019, 2,136 cryptos existed.
- At the end of Q1 2020, there were 5,285 cryptos, up 147.4% from Q1 2019.
- At the end of Q1 2021, the number grew to 9,045, 71.1% higher than at the end of Q1 2020.
- With a few weeks to go in Q1 2022, there are 18,234 cryptos, 101.5% more than at the end of Q1 2021.
The speculative frenzy has caused crypto prices to gyrate. Yet whether during explosive or implosive periods, new cryptos continued to come to the market each day.
And market participants have been willing to throw capital at new entrants, as they search for the next Bitcoin, Ethereum or other tokens that have delivered incredible returns.
h2 Asset Class Plagued By Scams/h2But speculative interest has attracted nefarious and criminal enterprises, some bringing new cryptos to markets. The global nature of the asset class allows many of the scams and scammers to dodge prosecution.
The technological evolution has had many benefits, but it has also made created privacy challenges. Hacking, scams and internet crimes have exploded. Some, if not many, of the tokens tempting investors and speculators are international hustles that fly beneath regulatory and government radar.
h2 Caution And Prudence: Risk-Reward Means Total Loss Is Possible/h2I believe there is a substantial role for cryptocurrencies as global assets. The latest executive order from the Biden administration recognized the asset class but outlined a strategy to protect consumers, financial institutions, national security and address climate risks.
As such, I continue to follow one basic rule when investing in any cryptocurrency, from the asset class leader, Bitcoin, to the most recent arrival among the 18,234 existing tokens. Never invest more than you're willing to lose.
It's critical to understand that risk is a function of potential rewards. The incredible percentage gains seen via some digital assets come with an equal risk of a total loss.
While cryptos have gone from feast to famine in their pricing, the only true bull market that has not faltered has been the number of tokens in the asset class. I expect the market will eventually cull the overpopulated herd of cryptocurrencies, but that has not yet occurred as of Mar. 17, 2022.
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