Are we close to the bottom of the cryptocurrency market?

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It’s estimated that over USD 30 trillion of global wealth was wiped from the market this year, of which cryptocurrencies accounted for over USD 2 trillion.

The first half of 2022 saw the worst stock sell-off in half a century. By June, US equities had lost USD 7 trillion in value, and by the middle of September, they were down a further USD 2.2 trillion. On the 26th of September, the S&P closed at its lowest level in 2022, and the Dow Jones officially entered a bear market. Gold hasn’t been spared either as the market witnessed the commodity drop by 10.92% year to date. The US treasury market, seen by many as a safe haven investment, has lost more than 10% of its value this year – resulting in its deepest annual loss and first back-to-back yearly decline since the early 1970s, according to Bloomberg.

Cryptocurrencies have not fared much better, losing over USD 2 trillion in market cap since January. Just this year alone, Bitcoin is down 52.39%, Ethereum is down 58.50% and Jaltech’s Cryptocurrency Basket is down 59% since its inception.

For information about Jaltech’s Cryptocurrency Basket, click here.

Two questions now remain unanswered, are we at the bottom of the market yet and if not is a further sell-off material for placing new capital into the market?

Warren Buffett’s famous quote should be ringing in the ears of investors – “[investors] should be fearful when others are greedy, and greedy when others are fearful.” Are we coming off a period of greed, and are we headed to (or are already in) a period of fear? If so, could this be close to the bottom of the market? The investment doyen clearly thinks so, having invested USD 50+ billion this year alone.

Market rebound

If history repeats itself, there are three major crashes that we can learn from that have occurred in the last 22 years, the dot-com crash between 2000-2001, the Great Financial Crises of 2008, and the Covid crash in 2020. The below chart summarises the massive drawdowns markets saw during these periods.

What should not go unnoticed is that the time to recover from each crash is getting shorter, from over 4 years during the dot-com crash and Great Financial Crises, to half that for the following two crashes. These gaps are where the opportunity of being “greedy when others are fearful” presents itself, but it doesn’t last forever.  

The same applies during times of recession. The below chart shows that stocks performed worse 1 year before a recession than during one. And, in the 2 years following a recession, 82% of stocks delivered positive returns.

For long-term investors, times like these may present wealth creation opportunities, but only if they have the courage to invest. Using the examples of the dot-com bubble and bitcoin’s past performance cycles, we can see that for those who take on the risk of investing when markets are down and when the global economy is in or near a recession, the potential returns are extremely attractive.

At the time of the dot-com crash, many were questioning the economic value of technology, prompting headlines like this to be written:

And the same is happening with cryptocurrencies today:

Despite the fear in the markets at the time of the dot-com crash, and each of the times listed below when bitcoin has crashed, the returns for investors taking on risk have been huge:

AssetDrawdownReturn 20-years later
Booking holdings-99%+30,838.6%,443.7%
2011 Bitcoin drawdown-94%?
2013-2015 Bitcoin drawdown-85%?
2017-2018 Bitcoin drawdown-84%?
Current Bitcoin drawdown-72%?

As we don’t know what Bitcoin’s returns will be in 20 years’ time, we’ve included the below chart which shows its recovery from each of the crashes listed above:

One could argue that the cryptocurrency market is in a deeply discounted territory, especially when you consider the level of adoption and innovation taking place in the sector and the fact that regulations are just around the corner. There are attractive valuations all over the cryptocurrency market right now – in an asset class known to have a huge upside for investors.

For information about Jaltech’s Cryptocurrency Basket, click here.

“The time to buy is when there’s blood in the streets” – looking at the exceptionally low cryptocurrency valuations today begs the question of how much the risk-reward tables are tilted towards investors who are prepared to take on the risk, and if the cryptocurrency sector is in a secular bull market this may be a real buying opportunity.

For investors who are uncertain as to which cryptocurrency/ies to invest in, Jaltech offers two diversified cryptocurrency baskets. Both of these baskets are managed by a team of cryptocurrency experts.

  • Chris McCormick & Jonty Sacks – Jaltech Fund Managers

Jaltech offers investors exposure to a basket of cryptocurrencies which is selected and managed by a team of cryptocurrency experts.

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