Let’s hope you didn’t jump on the bitcoin bandwagon a year ago. If you bought $1,000 worth of bitcoin when prices peaked in November 2021, your investment would be valued at only about $250 today.
On Friday, one bitcoin cost around $16,700. The price has declined by more than 75% since hitting an all-time high of $68,790 on Nov. 10, 2021, according to CoinMarketCap.
Ether, the native token of the Ethereum blockchain network and the second largest cryptocurrency, is down about the same percentage from its all-time high, also in November 2021.
Bitcoin has been through dips like this before. In December 2017, the cryptocurrency reached an all-time high just above $20,000, and its price slid to $3,191 the following December, a drop of 84%.
The cryptocurrency has recorded two falls of more than 50% in the last three years: first when the pandemic sent a global economic upheaval in March 2020, and then again during a recession after Bitcoin reached a record price of more than $64,000 in April 2021. .
The bitcoin crash of 2022 is just the latest reminder of the risks associated with investing in cryptocurrencies, given their extreme volatility.
Of course, only the most unlucky investors who bought at the peak actually lost 75% on their investments. And pretty much no matter where you’ve been investing, including the S&P 500, your portfolio is probably down this year. It’s also important to note that for long-term investors, these are just losses on paper. You only realize a loss when you sell.
Why is Bitcoin down this year?
Cryptocurrencies and stocks have often followed the same price trends in 2022. Both asset classes have been hit by high inflation, leading to higher interest rates, as well as recessionary concerns, says Alkesh Shah, global strategist for crypto and digital assets at Bank of America.
But the falls in cryptocurrencies have been steeper this year than those in other investment categories that are considered risky assets, such as technology stocks, which are down 30% this year, Shah says. However, it’s a different story if you look further back in time.
“On a two-year basis, the cryptocurrency sector is up more than 300% compared to, for example, software technology stocks which are up 35% in the last two years,” he says. “So it’s a significantly outperforming group on a two-year basis, but it definitely corrected this year along with the other risk assets.”
Bitcoin specifically is down 5% in the last 24 months. But if you invested in bitcoin four years ago, you would have tripled your money.
Cryptocurrency Exchange Concerns and Changes in Cryptocurrency Wallets
With cryptocurrency prices falling more than stock prices this year, but rising more than stocks over longer time periods, cryptocurrency fans and skeptics alike have fodder to make their case.
“Depends on how you want to look at it, and it seems like the situation gives everyone something to talk about, but certainly given the events that happened with the FTX bankruptcy, crypto skeptics are certainly the loudest right now,” Shah says. .
Even before the recent crash of major cryptocurrency exchange FTX, Shah says that cryptocurrency prices were affected this year by the bankruptcies of cryptocurrency hedge fund Three Arrows (3AC) and lending platform Voyager Digital, as well as by the challenges for another cryptocurrency lender, BlockFi. who is now preparing a possible bankruptcy filing, according to the Wall Street Journal.
“3AC, Voyager and BlockFi all struggled and then had to unwind their positions, putting more pressure on bitcoin,” Shah says.
The bitcoin price has not plunged further amid the FTX fiasco, but there has been a trend for investors to pull their funds off cryptocurrency exchanges and into cryptocurrency wallets, according to Shah. Some people are worried about having their money on exchanges, fearing that others might go under.
“Right now, the post-FTX trend is not that Bitcoin is going down,” Shah says. “These are people taking bitcoins off exchanges and putting them in wallets.”
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