Last month one of the most popular international media outlets in the world out a headline claiming that we have entered a “Crypto Currency Ice Age,” the concept behind the article was simple enough; Cryptocurrencies of all shades, stripes, shapes, and sizes had taken immense hits in valuation preceding the previous years and putting your hard-earned cash into these assets in hopes of quick and solid returns is a fool’s errand.
And while we do not completely agree with most of the claims made in the article, some of these claims were based on solid foundations. Cryptocurrencies which had seen astonishing valuations during the ebbing stages of the Covid-19 pandemic seriously dipped the very next year, causing hundreds of investors to lose Billions of Dollars.
But what the article failed to mention was that most cryptocurrencies that went through historic dips in valuations the previous year have been performing relatively better during the current fiscal year. For instance, two of the biggest giants of the crypto world, Bitcoin and Ethereum have strongly rebounded during the last four months.
But despite these rebounds, both of these currencies are nowhere near the heights they saw during their peak performance years. So, despite the strong recent performance, Bitcoin is valued at half of what it used to be in 2021.
A simple Google search supported by a reliable Internet Service Provider (ISP) like Spectrum reveals that the crypto world is a mixed bag, which makes the question raised in the title very pertinent. Does investing in crypto make sense in 2023? To answer this question let’s look at some of the most important trends impacting this Trillion Dollar market.
Factors Behind the Crypto Crash of 2022
2022 was one of the worst years for crypt currencies since their inception. Several major currencies tanked while several smaller ones like Luna and Terra were completely whipped out causing over 40 Billion USDs to go up in smoke. This crash was caused by two major factors.
The FTX Scandal
If we could blame one person for the crypto crash of 2022 it would be Sam Banksman Fried, the CEO of FTX. And even though Sam is now facing a serious investigation and faces up to 155 years in jail on fraud and financial misappropriation charges the damage he and his firm did to the crypto markets feels almost irreparable.
FTX was one of the biggest crypto exchanges in the world, rivaled only by Binance, yet the multi-Billion Dollar enterprise was allegedly making recording financial data on chits of paper and WhatsApp chat messages. According to investigators, the company felt as if it was being run by children playing with wards of Millions.
In simple terms, the company was not sustainable and ended up hitting a severe liquidity crisis. After the FTX crash, several smaller Crypto exchanges fell like dominos, leaving the market short by Millions of Dollars.
This huge blunder was a monstrous blow to investors’ confidence in the crypto market, causing prices to tank beyond measure.
Financial regulators in the U.S., especially those in the Securities and Exchange Commission, have woken up to the dangers posed by unregulated cryptocurrencies and exchanges. Several inquiries have been launched and business practices are being criticized. The White House even put out a press statement in this regard.
The age-old debate behind whether crypto is a security or a commodity has finally come to a close with the FTX crash and previously reluctant regulators are leaving no stone unturned to protect investors from volatile investment portfolios.
Factors Behind the Crypto Rebound of 2023
Despite their historically poor performance in 2022, cryptocurrencies, especially dominant ones like Bitcoin and Ethereum have made strong gains during the initial months of the current year. So, how have markets managed to rebound so quickly? The answer to this question can be found in another crash, albeit of a different kind.
The Silicon Valley Bank Crisis
The spectacular crash of the Silicon Valley Bank (SVB) left many U.S. regulators stunned. Media outlets broadcast images of giant snake-like queues outside SVB’s outlets where several major individuals and companies in Silicon Valley kept Millions of Dollars in revenues.
The Federal Government was forced to spur into action to bail out the bank saving hundreds if not thousands of people and companies alike from bankruptcy.
The SVB crash cast serious doubts on the viability of the U.S. banking system, causing investors to once again look at other options, including crypto. This is where the re-rise of crypto began.
It’s like a dangerous spiral, a crash in one sector causes a boom in the other and vice versa.
And even though the predicted run of U.S banks never really materialized, investors now have another unique factor to consider while hoarding wards of cash.
Should You Invest in Crypto in 2023?
Now that we have discussed the causes, let’s move back to our main question. And the simple answer is yes. But be careful.
Crypto is still a viable investment option and may lead to healthy returns but you should be very vigilant about what currencies and exchanges you choose. So, before making the investment update your broadband connection to an established internet provider (ISP) like Spectrum and set up regular alerts on market updates.
Try to invest through legitimate exchanges that perform proper due diligence and make sure to check the performance of the currency for the previous six months.
So, invest away, but keep an eye out.