The falling value of bitcoin and the turmoil among major cryptocurrency platforms has many investors worried about their digital wallets and leaders in the space warning about a “crypto winter”.
So what’s happening, and what does this mean for your portfolio? Here’s what you need to know.
What’s up with bitcoin?
Bitcoin continues a downward spiral that marked much of 2022 for the popular cryptocurrency.
Story continues below ad
The digital currency continued to decline on Tuesday after falling 16 percent on Monday, which reduced its value to US$22,400. Bitcoin has lost more than two-thirds of its value compared to all-time highs in November last year.
Bitcoin is not the only crypto asset facing a recession.
Ethereum, another widely followed cryptocurrency, was down nearly 17 percent on Monday. The crypto market overall fell below the $1 trillion mark this week.
Investors are selling riskier assets such as digital currencies and technology stocks as the Federal Reserve raised interest rates to combat high inflation.
A bear market began on Wall Street on Monday as the S&P 500 fell 20 percent from its previous high in January.
Read more:
Wall Street enters bear market as rate hikes, bearish fears send stocks lower
Alex Tapscott, managing director of the Digital Asset Group at Ninepoint Partners, told Global News that the cryptocurrency will face the same “broad-based selloff” in 2022 that will drive the value of high-risk assets, including tech stocks like Netflix and Meta. affects.
He says the trend has recently “accelerated” as investors seek to get riskier assets out of their portfolios.
Story continues below ad
“Investors want to mitigate risk across the board and with it bitcoin and crypto assets are being washed out,” he says.
What is happening to crypto platforms?
Bitcoin’s latest drop also stems from alarming moves by some major crypto exchanges and lending platforms, which this week announced plans to halt operations or cut jobs.
On Sunday, cryptocurrency lending platform Celsius Network announced that it is halting all withdrawals and transfers between accounts in order to “respect withdrawal obligations, over time.”
Celsius, with nearly 1.7 million customers and assets of over US$10 billion, gave no indication in its announcement of when it would allow users to access its funds.
1:57 What you need to know before investing in cryptocurrency What you need to know before investing in cryptocurrency – November 4, 2021
The Caisse de dépôt et Placement du Québec, the pension fund of the province, is among Celsius’s supporters.
trending stories
-
![]()
Unvaccinated Canadians can board planes, trains as Fed defies COVID-19 mandate
-
![]()
Passport renewal wait times are now online as Ottawa seeks to address long lineups
Story continues below ad
“This has led to a crisis of confidence, I think, in many other companies in the sector and people are now thinking about how risky their investments can be,” Tapscott says.
Meanwhile, on Tuesday crypto exchange Coinbase announced it was cutting 1,100 jobs, or 18 percent of its workforce. It joins companies including BlockFi and Crypto.com in cutting hundreds of jobs amid the collapse.
Announcing the decision in a blog post, Coinbase CEO Brian Armstrong said that the platform grew rapidly as it sought to capitalize on the crypto boom last year and would need to cut costs as it prepares for an economic downturn.
“Looks like we are entering a recession after a 10+ year economic boom. The recession could lead to another cryptocurrency winter and last longer,” Armstrong wrote.
What is ‘Crypto Winter’?
The “crypto winter” that Armstrong referred to in his post usually refers to a longer period, or months or years, in the cryptocurrency space, when the value of digital assets is declining and the space as a whole is very low. is interested.
Story continues below ad
“It’s like that. It’s winter, it’s winter, it’s cold. Investors don’t want to be in it. More sellers than buyers,” says Genevieve Roche-Dektor, CEO of Grit Capital.
0:32 Crypto market cap falls below US$1 trillion as bitcoin hits 18-month low
This could be a time when the so-called alt-coins that popped up during the crypto craze of the past few years and, similar to the dot-com bubble of the late 1990s, could lose all value.
Read more:
Shouldn’t stablecoins be stablecoins? What’s Behind TerraUSD’s Downfall
Tapscott is less convinced that winter has arrived for cryptocurrencies.
While there have been past busts and declines around the crypto world, he noted that institutional investors have taken a greater vested interest in digital assets in recent years.
Story continues below ad
Payment processors such as PayPal, Visa and Mastercard have swung into crypto and many exchange platforms still have a great deal of access to funding they may not have found in earlier recessions.
“There’s a lot of funding. It’s a lot more sophisticated, it’s a lot more widely held, there’s far more innovation and therefore utility,” he says.
“And I think as a result we’re going to see winter like it’s a little less cold and a little bit longer than anything we’ve seen in the past. I think if anything, it’s going to be like this.” The bar will recover very fast.”
What should you do about your portfolio?
For many investors venturing into the crypto space amid the recent hype of Super Bowl ads and Reddit threads, this will be the first time the value of their digital assets will plummet.
Story continues below ad
Roche-Dektor says that owning cryptocurrencies is “not for the faint of heart” and that if they ever do, it could take years for assets like bitcoin to return to their previous highs.
Bitcoin and other cryptocurrencies have seen huge gains as well as big downsides, and anyone relying on big payouts in the space will have a longer investment horizon, she says.
2:54 Money Matters with Bon Investment Group in Wellington-Altus Private Wealth Money Matters with Bon Investment Group in Wellington-Altus Private Wealth
When it comes to making money with your portfolio, Roche-Dektor says that many young investors may be discouraged to hear that volatile assets like crypto usually aren’t the best path forward.
“Boring is really sexy. The way to make money long term is just to be in basic companies that generate revenue in up and down markets. And unfortunately, that’s not what that generation wants to hear,” she says.
Story continues below ad
For investors looking to ride the crypto roller coaster, Roche-Dector recommends more limited exposure. He suggests that an overall portfolio may have 80 percent safe assets and 20 percent more for fun in speculative ventures.
“I don’t support all of those things, but you have to keep some of it entertaining and keep yourself in the game. Everything else — sleep through the night,” she says.
— Anne Gaviola of Global News, with files from The Associated Press, Reuters
© 2022 Global News, a division of Corus Entertainment Inc.
