Dubai: Investments in cryptocurrencies have been consistently declining after peaking in November 2021, with trading volumes dropping to sizably low levels since then. Is there an end in sight to this prolonged season of, what experts refer to as, ‘crypto winter’? If not, should investors be worried?
Cryptocurrencies are still down over $1.5 trillion (Dh5.5 trillion) in value since the height of a massive price rally in 2021, with the total market valuation currently standing at $1.2 trillion (Dh4.4 trillion) along with the volume of daily traded crypto at $70 billion (Dh257 billion).
The ‘crypto winter’ also wiped out over 67,000 crypto millionaires since peaking at about 100,000 in 2021 and last month alone, trading volume of the world’s largest crypto token Bitcoin, which makes up majority of the overall market, plummeted by almost $700 billion (Dh2.57 trillion).
“It is estimated the total market value of cryptocurrencies went down dramatically, particularly between May and June 2021, as the digital coins became less likely of an investment tool,” wrote Raynor de Best, a researcher at Statista, an online market and consumer statistics database.
Is cryptocurrency still valuable as an investment today?
“The price of Bitcoin has been erratic, and most other cryptocurrencies follow its larger price swings. This volatility attracts investors who hope to buy when the price is low and sell at its peak, turning a profit,” Raynor de Best added. “However, this does little for price stability.”
Most of the cryptocurrencies still lag much behind their all-time highs. Bitcoin is still down 50 per cent from its record high touched in November 2021 at $69,000 (Dh253,400), and Ethereum, now trading at the levels of $1,900 (Dh7,000), touched an all-time high of $4,000 (Dh14,689) in 2021. But it’s not all bad news.
Much to the relief of investors, Bitcoin and Ethereum are staging somewhat of a recovery now. Bitcoin has risen almost 80 per cent this year and similarly Ethereum has almost shown a rally of 65 per cent till this time of the year. So the digital investments cannot be written off just yet.
Even though cryptocurrency trading volumes are still far lower than before, the good news is that, 2023 has been able to absorb all the major losses which the market suffered in 2022
“So even though cryptocurrency trading volumes are still far lower than before, the good news is that, 2023 has been able to absorb all the major losses which the market suffered in 2022,” said Brian Deshell, a UAE-based cryptocurrency trader and analyst.
“If we look at the April figures, then Bitcoin and Ethereum have surged 17 per cent and 46 per cent, which is a remarkable feat. Similarly, rival token Cardano (ADA) has also clocked more than 50 per cent gain in the first four months of this year and has a market value of $13.3 (Dh50) billion.”
Why are prices of cryptocurrencies still far lower than before?
The prime reason for the market downturn is the downfall of one of the largest global cryptocurrency exchange, FTX. FTX’s bankruptcy has not only triggered a huge sell-off but has also reduced liquidity from the crypto market.
“Multiple issues with FTX’s finances and regulatory investigations stunned crypto investors and left Bitcoin to tumble to the lowest level in two years,” added Deshell. “The surprising turn of events also led to a turmoil like situation in the crypto industry.
“This resulted in high level of distrust and skepticism among the investors towards crypto establishments and on the regulation front. The FTX contagion effect is quite evident, several questions have now been pointed out on the survival of other crypto trading firms worldwide.”
So while the slump last year was triggered by the collapse of FTX, which handled around $1 billion (Dh3.67 billion) transactions each day, its collapse is having a knock-on effect on other crypto exchanges, and this poses a threat to the pace of recovery of the cryptocurrency market even today.
Verdict: Should you be worried about your crypto investments today?
The bottom line is that the cryptocurrency market has seen worse and the crypto market has literally gone through the roughest storms during the past few years. But as the burnt crypto market now has a fresh start and is showing positive signs of a recovery, should investors still be worried?
If you are an experiences or a seasoned investor, crypto experts widely believes that in this kind of scenario, you can look up to invest in stable digital coins such as Bitcoin or Ethereum, but should only give 5 per cent exposure to cryptocurrencies in their overall investment portfolio.
For a new investor, now is also a crucial time to observe how the cryptocurrency market performs, as once this chaos fizzes out, you may be able to find your favorite digital asset at a much fair value
This is because cryptocurrency prices are still highly volatile and extremely speculative, so it is advisable to invest only an amount which you can afford to lose, particularly if you’re an investor new to incredibly risky asset class.
As to whether or not the investment will turn more stable in the near future, while there is still uncertainty on that front among industry analysts, with more global crypto regulation around the corner, the digital currency can get steadier in the months to come. But only time will tell for certain.
“With cryptocurrencies, it is always better to not impulsively invest. Moreover, for a new investor, now is also a crucial time to observe how the cryptocurrency market performs, as once this chaos fizzes out, you may be able to find your favorite digital asset at a much fair value,” Dshell added.