2022 was a complex year for most financial instruments, with declines often in double digits. For cryptocurrencies, however, we can speak of a real meltdown. A few numbers are enough to summarize the collapse of the first eleven months of the year. Let’s start with bitcoin: prices have dropped from about $50,000 to $16,000, with a drop of $34,000. The drop since the beginning of the year exceeds 65%, while from the maximum we have recorded a -75%. Ethereum, the second virtual currency by market capitalization, was worth around $3,700 at the beginning of the year, today it is worth $1,300. The overall capitalization of the sector has fallen from over 3,000 billion dollars to less than 900 billion, again with declines of more than 60%.
Various reasons have been put forward for the decline in the value of cryptocurrencies. On the one hand, the escape from risky investments, in a difficult year for the stock exchanges, on the other, the rises in interest rates by central banks, which implicitly make it more expensive to hold financial instruments that do not pay coupons or dividends. In the meantime, the alleged mass adoption of bitcoin and cryptocurrencies remains – at least in the short term – a mirage that hardly anyone believes in anymore.
To this must be added the recent events related to the collapse of numerous companies in the sector. In November, in fact, Ftx, the third world platform for the exchange of cryptocurrencies, went bankrupt. Not too long ago there was talk of a value for Ftx of 30 billion dollars, which evaporated in a few days, as well as the money of those who had invested in virtual currencies with this exchange. Bankman-Fried, the company’s CEO and a great supporter of crypto, had repeatedly acted as a white knight in recent months to save other small companies in the crypto world. Now, especially after the renunciation of the competitor Binance, there have been no white knights ready to enter the shareholders of Ftx, dragging the company towards bankruptcy. Indeed, the former giant of virtual currencies was not the only company to resort to the dreaded “chapter 11”, ie to bring the books to court. Just in recent days, a similar fate befell BlockFi, a company that prided itself on being among the most solid in the cryptocurrency lending sector with interest. The reasons for the failure of BlockFi are different than the crazy speculations of Ftx, also the management is working to return some of the money to customers, but the end result was similar. Solana, a public blockchain and decentralized platform, also complains of problems. At the beginning of the year, its token was worth $170, a month ago it was $35 and today it is around $13.5, with a drop of over 90% in eleven months. Instead, US cryptocurrency broker Genesis is fighting to avoid bankruptcy. These events, in particular the crash of Ftx, once again undermine the already low credibility of the sector, exposing the traditional problems. The first, as written several times in this column, is that of the lack of regulation for the sector, especially in cryptocurrency exchanges. This makes financial wild west situations like Ftx possible.
Such a jungle makes it extremely difficult for investors to distinguish serious projects related to the blockchain world from the myriad of new cryptocurrencies with little chance of success or, even worse, from “scams”, where funds are raised without a real project behind them, in order to to scam some inexperienced investor.
One last note. Over time, it has often been said that bitcoin could be considered a safe haven. Maybe in the future there will be new rallies, maybe even notable ones. At the moment, however, analyzing the numbers of 2022 this thesis does not stand. Just like it doesn’t hold a candle to gold. Statistically speaking, the yellow metal – in 2022 characterized by interest rate hikes by the Fed – lost 2.5% in dollars, with a performance that for European investors is instead around +5% thanks to the exchange. No collapse, therefore, for gold, but rather the confirmation of who is really destined to play the role of safe haven par excellence.