Analyst says: 'Cryptocurrency may have reached its lowest level in months'

Analyst says: ‘Cryptocurrency may have reached its lowest level in months’

2022 has not been kind to cryptocurrency buyers, but the big swoon earlier this year has a positive side that may prove to benefit other risk investors.

After extensive sales in the first quarter, according to Queen Market CapThe total cryptocurrency market cap fell by more than half (-56%) in the second quarter. However, since July, the total cryptocurrency market cap has increased by 7%.

“We may have hit multi-month lows due to back-to-back liquidations,” Thomas Dunleavy, chief market analyst at Messari, told Yahoo Finance. Most of the sellers seemed to have left.”

With interest rates hiked by central banks, crypto-leverage has been canceled in a big way starting in May with The Collapse of the $40 Billion Terra Ecosystem Followed by hedge fund Three Arrows Capital, Voyager, Celsius and others. Top crypto executives including Michael Morrow of Genesis Trading, Kraken CEO Jesse Powell and Sam Trabuco of FTX trading firm Alameda Research have also resigned.

A mural was painted on the wall during the North American Bitcoin Conference held at the James L. Knight Center on January 19, 2022 in Miami, Florida. (Photo by Joe Riddell/Getty Images)

Celsius Network CEO Alex Mashinsky also left his post, stating that he regretted that his continued role during the company’s bankruptcy “has become an increasing distraction.”

To date, bitcoin and other cryptocurrencies remain among the biggest losers among risky assets, seeing a 60% drop in bitcoin and up to 84% for other currencies like Avalanche (AVAX).

But in the third quarter, Bitcoin changed little (+1%) while the Nasdaq (^IXIC) is down 2.7%, the S&P 500 (^GSPC) is down 4%, and the Dow (DJI) is down 5.4% as of Market closed on Friday.

And while bitcoin has not proven to be an inflation hedge as promoters said, the asset class — dominated by speculation exacerbating macro conditions — could continue to push the cryptocurrency as a leading indicator of how much risk investors are taking.

“A rise in crypto is certainly not a guarantee, but it is always a good leading indicator,” Farrell said.

VanEck Portfolio Manager Pranav Kanadi notes that the performance of the cryptocurrency in the current bear market does not look as existential as the previous rough corrections.

“In the 2018 to 2019 bear market, it wasn’t clear if the space would hold. This time, during the pullback from the market peak in December, there is a sense of inevitability in the ecosystem,” Cannady said.

Cannady added that whether investing in cryptocurrencies goes beyond guesswork depends on whether crypto teams can attract more users to different blockchains. Furthermore, for these applications to function, the blockchain needs to scale its throughput (transactions per second).

He explained, “Cryptocurrencies make up less than 50 basis points for all global assets today and there are about 2.5 million daily users of blockchain today. But there are more than 4 billion people who own smartphones. For the market cap to grow, daily active users need to grow.”

And while the Ethereum integration upgrade did nothing to expand productivity, the market interpreted the move in the right direction.

Ether (ETH-USD), up 26% From $1,057 on July 1 to $1,339 on Friday afternoon, it has outperformed bitcoin as most other assets since July.

“We now know how a lot of these chains like Ethereum or Solana or Cosmos are going to do that, so now it’s just a race to get there first,” Kanadee said.

David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at Tweet embed

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