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Crypto in 2022: Is there hope for a comeback?

The crypto market has been in chaos this year, in line with other risky assets, as investors worry about rising inflation, signs of a slowing economy and the Federal Reserve’s monetary tightening.

bitcoin BTCUSD,
-0.01%
is down more than 55% from its November all-time high and continues to trade in consolidation, while Ether ETHUSD,
+0.23%
is trading nearly 60% lower from its record high. Most smaller coins are seeing even bigger losses.

Crypto’s performance for the remainder of the year remains largely dependent on investor risk appetite, led by the macroeconomic environment, analysts said.

Although Bitcoin has held up better than stocks in the first quarter, it can still quickly plunge into a sell-off. “I think you can bottom in crypto much quicker than you can in traditional markets,” Joseph Hickey, BlockFi’s global head of trading, said in an interview.

“It looks very likely that Bitcoin will see losses in 2022,” noted Tony Nyman, FX fundamental manager at Informa Global Markets, noting that the cryptocurrency started trading near $48,000 earlier in the year. “The more relevant question might be whether BTC/USD falls further than the recent low of $25,425,” Nyman wrote in an email to MarketWatch.

“We think this is likely,” Nyman wrote, highlighting $22,000, $20,000 and $17,840 as “realistic downside targets” for the second half of the year.

Ben McMillan, founder and chief investment officer at IDX Digital Assets, compared the recent consolidation in the crypto market to dot.com’s bust in the early 2000s, saying it was “ultimately good for the space.”

“It reminds me of the Pets.com and Amazon.com sell-offs in the 2000s. Both were down over 80%. One of them went out of business while the other became an industry leader,” McMillan said.

“I think the key to long-term price appreciation is that we need to see a risk bid come back into the markets,” McMillan said. “That means investors need to anticipate peak inflation. I think they need to see language from the Fed that helps inform expectations of when they might start scaling back.”

If risk appetite returns, McMillan said he wouldn’t be surprised if Bitcoin “balances out again for the year, maybe even a bit positive.”

Investors are also watching Ethereum’s “merge,” a major upgrade that will transition the blockchain from proof-of-work to proof-of-stake, a consensus mechanism that is less power intensive.

The Ethereum Foundation, which supports the blockchain, expected the “merge” to be completed in the third or fourth quarter of this year.

“I think it will be a good price catalyst, but is it enough to lift Ethereum when the macro environment is still tough and we still don’t see any risk asset supply? I don’t think investors should bet on that,” McMillan said.

Despite the selling pressure in the public market, capital continues to flow into the private market for crypto.

Andreessen Horowitz said Wednesday that it has raised $4.5 billion for its fourth and largest crypto fund. “We believe we are now entering the golden age of web3,” which refers to the so-called next-generation internet, wrote Chris Dixon, founder and managing partner of the company’s crypto unit, in an emailed statement.

However, “valuations for many projects are already low. That’s a good thing,” said Kavita Gupta, founder and general partner of the Delta Blockchain Fund, in an interview with MarketWatch.

“I think that will make everyone take a step back, which has already happened. We already see ourselves as a fund that looks at popular projects and says, guess what, not at this valuation,” Gupta said. “Even after we’ve passed them, it’s not like it used to be where someone else just comes along and gives them a high regard.”

Read: Dow posts 4th day of gains, stocks rebound after Fed minutes signaling flexibility on rate hikes

Also read: This 24-year-old quit his job at hedge fund powerhouse Citadel to rebuild on the Terra blockchain — which collapsed two months later

https://www.marketwatch.com/story/crypto-in-2022-is-there-any-hope-of-a-comeback-11653515837?rss=1&siteid=rss Crypto in 2022: Is there hope for a comeback?

Brian Lowry

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