A year ago, crypto analysts, riding high from the successes of 2021, had big hopes for Bitcoin, with some of them seeing the token hitting $100,000 or more in 2022.
That’s a far reach from where the coin is actually ending this annus horribilis: $16,500.
Bitcoin, weighed down by an uber-hawkish Federal Reserve and a string of scandals and implosions of the crypto space’s once-vaunted projects, lost more than 60 per cent in 2022, its second-worst annual performance on record, and only its third down year ever. Other cryptocurrencies also suffered, with Ether losing near 70 per cent, and an index of the 100 largest coins dropping roughly 65 per cent.
“People did not understand how much of an ‘easy money’ asset class cryptocurrencies were in 2020 and 2021,” said Matt Maley, chief market strategist for Miller Tabak + Co. “Some cryptos will survive and even thrive in the future, but they moved way too far, way too fast after the Fed engaged in their zero interest rate and massive QE policies. Now that these programs have disappeared, it’s going to take a lot longer for the crypto asset class to reach its full potential.”
Fundstrat’s Tom Lee at the end of 2021 said the coin could easily reach $100,000 in 2022 and that the $200,000 range was achievable. “I know it sounds fantastical, but it’s very useful,” he told an interviewer.
Meanwhile, at the start of January, Goldman Sachs strategists predicted that Bitcoin could reach $100,000 over five years as it took market share from gold. Crypto advocate Mike Novogratz had called for the token to reach $500,000 in the same time frame, a projection he then dropped at the beginning of December.
The $100,000-plus price predictions showed “how influenced most of us still are by recency bias”, said Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.
But perhaps none have been bolder than ARK Investment Management’s Cathie Wood, who at the end of November reiterated her Bitcoin target of $1 million by 2030 - a roughly 6,000 per cent increase from current levels.
“Sometimes you need to go through crises to see the survivors,” Wood told Bloomberg TV at the time. “We think Bitcoin is coming out of this smelling like a rose.”
Plenty of strategists at the start of the year misread just how aggressive the Fed was going to be with its interest-rate hikes as it worked to tamp down inflation. Other central banks around the world also raised rates, creating an undesirable environment for risky assets like crypto - and a big change from the heady days of 2020 and 2021, when rates were super low.
Crypto-centric stocks also got clobbered in 2022, with Coinbase Global Inc. and Marathon Digital Holdings Inc. each shedding roughly 90 per cent, Riot Blockchain Inc. losing 85 per cent and MicroStrategy Inc. off by 74 per cent.
“2020-2021 was a zero-interest rate policy party, rewarding the most suave party attendants for extreme risk-taking,” Vetle Lunde, senior analyst at Arcane, wrote in a research report. On the other hand, “2022 has been a yearlong hangover,” he said, adding that “fortune did not favor the brave, and we entered a consistent doom cycle of default, fraud and contagion.”
From the implosion of the Terra blockchain, which brought down a number of crypto lenders, to FTX’s bankruptcy, the year served up blow after blow for the industry. Lunde points out that his firm’s “Liquid Tradeable BTC” proxy has fallen to June 2020 lows, and that exchange balances have also dropped, which has implications for Bitcoin liquidity. He expects the market to calm down in 2023, but does not see prices reaching former all-time highs during the stretch - though Bitcoin could close out the year higher than where it started.