Rounding Out a Bad Year in the World of Cryptocurrencies

To say the least it has been a terrible year for cryptocurrencies with the leaders, Bitcoin and Ethereum down by two-thirds and all of the rest of the crypto world following suit. A common opinion among those who follow the crypto market is that prices will slide more before any recovery. Factors driving this downturn include raging inflation, higher interest rates, the prospect of a recession, Russia’s war in Ukraine, China’s stringent Covid lockdowns, and shortages of food, fertilizer, and strategic minerals due to bad weather as well as the war in Ukraine. Day by day the prospect of the US Federal Reserve raising interest rates higher and higher weighs on both the stock market and crypto prices. Looking ahead there is the prospect of strict regulation of crypto markets on top of enforcement of taxes on crypto profits.

Fears of Crypto Regulation Depress Prices

Lawmakers are working on how to regulate crypto markets which includes trying to decide if crypto should be treated like money, stocks, commodities or whatever. President Biden issued an executive order telling Federal agencies to sort this out and get their ducks in a row so that they are not tripping over each other as regulation sets in. The need for regulation has been evidenced by the collapse of stable coins and investors losing millions of dollars in crypto value. Because of cross investing among crypto companies there has been a domino effect of sequential bankruptcies. Recent evidence that there is a substantial amount of Bitcoin wash trading (which is illegal in the stock markets) has only hastened the rush to regulate.

Short Term Versus Long Term Effects of Regulation on Crypto Prices

In the immediate term crypto investors are concerned about not only the long list of troubles afflicting all markets today but also the prospect of strict regulations causing catastrophic crashes in the crypto markets or even the banning of Bitcoin and others in the USA. But over the longer term many believe that crypto regulations will reduce the current disorder in crypto markets and legitimize crypto as a tradable entity and long term investment. Thus, one might expect to see regulation help drive crypto down in the near term and support it over years to come. One of the beneficial effects of regulation will likely be a stabilization of crypto markets and prices.

Long Term Prospects and Fundamental Value of Cryptocurrencies

We have written repeatedly that the long term value of cryptocurrencies will be based on their fundamental value. This, we believe, will lie in the realms of the Metaverse, NFTs, and decentralized finance. At this point Ethereum looks to us like a better bet over time and is likely to surpass Bitcoin in value. As Fintech advances over time cryptocurrencies associated with this sector will advance as well as their values will be tied to real world profit and loss instead of market speculation.

Crypto’s Next Five Years – SlideShare Version

Crypto’s Next Five Years – DOC

Crypto’s Next Five Years – PDF