Cryptocurrencies gain momentum, but market behavior is still volatile

It has been an absolutely brutal year for investors in bitcoin and other cryptocurrencies.

Bitcoin lost more than half its value in 2022. Now hovering around $23,000, the price of a single bitcoin is down more than 65% below last year’s all-time high of nearly $70,000.

The value of all cryptocurrencies has dropped from around $2.2 trillion at the end of 2021 to just over $1 trillion today.

Bitcoin, the world’s largest cryptocurrency, accounts for around 42% of the total market, but 2022 was just as dire for owners of other cryptocurrency-related assets such as Coinbase. The broker’s shares are down 75% so far this year. Rival Robinhood shares have lost half their value.

There are hopes that the worst for cryptocurrencies is over. Bitcoin has gained over 15% in the past week, and two other major cryptos are up even more.

Solana is up more than 35% in the last seven days, while ethereum, or ether, is up nearly 45%. Ether, the second most valuable cryptocurrency, is widely used to fund purchases of non-fungible tokens, or NFTs, the digital assets that have taken the collectibles world by storm.

Coinbase also rose and was up 9% this Monday (18). Software company MicroStrategy, which had nearly 130,000 bitcoins on its balance sheet as of June 30, is up more than 35% in the past five days.

The return of cryptocurrencies could be a validation for the biggest supporters in the industry. At the same time, it should also serve as a reminder that the nascent market is likely to remain volatile for the foreseeable future.

Expect more volatility

“We will see a long-term rally in the digital asset sector, but I wouldn’t be too excited just yet,” said Joel Kruger, market strategist at LMAX Group. “This is still an emerging market.”

Kruger said bitcoin’s rally lagged behind sharper upward moves in ether and other smaller cryptos, and remains a near-term concern.

The broader group of cryptocurrencies and equities may not see a more significant rally until there is “a healthier bounce” in bitcoin, he added.

So all the excitement about bitcoin being the digital equivalent of gold is just that: hype. As an asset, bitcoin behaves much more like volatile tech stocks than much more stable commodities like gold or government-backed currencies like the dollar and euro.

Investors should also consider that there may not be enough interest in cryptocurrencies to justify the thousands of coins, tokens and exchanges out there. If that is the case, only the strongest cryptocurrencies will survive and thrive.

“Cryptocurrency has gone through a dotcom era,” when many great ideas and companies were created, Adam Grealish, head of investment at wealth management fintech Altruist, said via email. But a number of not-so-great ideas and companies were also launched, he added.

The same scenario will likely apply to cryptocurrency. “With tougher markets, companies in weaker positions and with weaker business models will feel a lot of pressure,” said Grealish.

Don’t tell that to crypto bulls. The broader rally is lifting the stock of almost every company linked to the sector. Several cryptocurrency mining companies, which use computers to solve complex mathematical equations to generate new bitcoins, have risen sharply in recent days.

Marathon Digital is up 21% on Monday and up more than 50% last week. Riot Blockchain is up over 40% in the last five days, while Hive Blockchain and Bitfarms are up around 25%.

So have bitcoin, ether and major cryptocurrency stocks finally hit rock bottom? There are some hopeful signs.

winners and losers

Two banks that provide cryptocurrency-backed loans and offer digital currency deposits, Silvergate Capital and Signature Bank, each reported earnings and revenues on Tuesday that beat Wall Street’s forecasts.

It also appears that the industry turmoil has created a shake-up of winners and losers between publicly traded companies and startups.

Cryptocurrency lender Celsius was forced to file for bankruptcy earlier this month. But private cryptocurrency giant FTX continues to thrive and now has a valuation of $32 billion.

FTX recently agreed to provide a line of credit to cryptocurrency firm BlockFi, and the company’s billionaire CEO Sam Bankman-Fried spoke about using FTX’s financial strength to bail out other cryptocurrency companies as well.

Bankman-Fried also has a stake in Robinhood, and there have been recent rumors that FTX may want to buy the struggling exchange. Bankman-Fried denied these reports to the CNN Business .