Why I’m Still Investing In Crypto – Even If Prices Are Falling

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By almost any standard, 2022 has been a disaster for cryptocurrencies. It’s not just that the crypto market has lost nearly $2 trillion in overall market capitalization or that Bitcoin (BTC -1.11%) and Ethereum (ETH -2.04%) are both down. over 65% for the year. There was also a complete loss of faith in the system itself.

Crypto lenders, stablecoins, and cryptocurrency exchanges imploded throughout the year. And many of the most prominent names in the crypto industry have turned out to be just scammers (or worse).

Looking ahead to 2023, however, I am still optimistic about the long-term prospects for crypto. Here’s why.

Volatility

Long-time crypto investors recognize that volatility has always been a feature of the crypto market. It’s not new. Even with Bitcoin down 65% for the year, it is possible to point to equally bad years over the past decade.

In 2014, for example, Bitcoin was down 58%, and in 2018 it was down 73%. Both times the cryptocurrency rallied and actually went up afterward.

Despite these two crashes, Bitcoin was still the best performing asset class in the world during the decade 2011-2021, offering annualized returns of 230%. Think about it for a second: Bitcoin had two epic crashes in a 10-year span and still ended up beating every other asset class in the world.

This is one of the main reasons I remain bullish on Bitcoin: it has a historical track record of bouncing back after every major crypto market decline. In other words, I learned to stop worrying and love volatility.

New Use Cases for Cryptography

The crypto market continues to evolve and find new use cases. When Bitcoin first appeared in 2009, Satoshi Nakamoto envisioned a peer-to-peer electronic payment system as its primary use case. By the time Ethereum hit the scene in 2015, that thinking had evolved. New smart contracts ushered in a period of innovation, including the arrival of non-fungible tokens (NFTs), web3 games, the metaverse, and decentralized finance (DeFi).

Image source: Getty Images.

Going forward, I think we will continue to see new use cases emerge. For example, one line of thought suggests that we will see the “tokenization of the world”, in which every physical asset in the world is eventually transformed into a fractional, shareable and tradable digital asset. Decentralized exchanges are already working on this technology, so these digital assets can be traded like crypto tokens.

At the very least, we can expect radical improvements in crypto payment technology and the adoption of cryptocurrencies, like Bitcoin, for online payments. With each new use case, the value of the total crypto market will continue to grow.

The arrival of institutional investors

Until recently, the crypto market was almost exclusively the domain of the small retail investor. As such, it was very easy to be skeptical of the overall growth trajectory of crypto. Large institutional investors have often stated that they see no purpose for crypto other than money laundering or other criminal activity.

From this perspective, it was very easy to turn bearish whenever the crypto market crashed. To an outsider, it looked like another Dutch tulip bulb craze.

But this is no longer the case. Wall Street is increasingly embracing blockchain and crypto technology, while major institutional investors are now getting in on the action. This summer, for example, included a massive new collaboration between BlackRock Inc. (BLK -0.10%), the largest asset manager in the world, with Coinbase (COIN -8.00%), the largest exchange of US-based cryptocurrency.

As BlackRock recognized, institutional investors were clamoring for crypto and Coinbase was a natural partner. With the arrival of so many new institutional funds, I think we will see improved risk management in the crypto world, as well as new investment products.

A much brighter year 2023

For all these reasons, I think 2023 will be much brighter than 2022. We have literally hit rock bottom right now, and now is not the time to sell crypto. Most likely, we will see the arrival of new crypto legislation next year that will bring much better clarity and certainty to the crypto market, which has been compared to the “Wild West” following market shenanigans. FTX. That, too, should help reassure nervous investors.

Crypto is still risky and volatile, of course, but I think the influx of new institutional funds into crypto, combined with greater regulatory oversight and clarity to ward off bad actors, will help mitigate some of this risk. The innovative nature of the crypto and blockchain industry will eventually bring back the bulls that hibernated for a long crypto winter.

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