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The reputation of cryptocurrency champions took a severe hit in arguably one of the worst years the industry has seen, but certain Seeking Alpha contributors warned investors of the impending downturn.
The crypto market suffered from high-profile bankruptcies, including the FTX meltdown, as well as a wider risk-off sentiment spurred by fast-rising interest rates and concerns about the future of the economy.
Bitcoin (BTC-USD), the general public’s totem for the crypto market, dropped about 65% in 2022.
Many pro-crypto arguments that fueled its rise in previous years underwent intense scrutiny, from Bitcoin’s potential as an inflation hedge to the idea that a market can function effectively absent substantial regulatory oversight.
Here are Seeking Alpha editors’ picks for some of the best contributor work predicting the crypto meltdown during 2022.
Recognizing Crypto Winter Was Coming
Crypto entered 2022 with a lingering sense of enthusiasm. Bitcoin (BTC-USD) reached a high near $69K during November, 2021. It came well off that peak by the end of 2021, yet still hovered above $47K as the year began. But some experts saw troubled times ahead.
Seeking Alpha contributor Clem Chambers in January anticipated that crypto was nearing a crash — one of the sharp pullbacks that has marked the crypto’s history. “If we see sub-$40K, a move to $20K territory will follow quickly,” he predicted. (Even this would prove overly optimistic, as BTC-USD would fall below $15.5K at one point.)
Along with technical signs of trouble, Chambers based his prediction on an insight that “retail is bored of crypto” as 2022 dawned. He also accurately predicted that Bitcoin “is not an inflation hedge in the current market.”
Another contributor, BiotechValley Insights, added to the bearish voices early in the year. The analyst said crypto investors would encounter a perfect storm of negative drivers that will crush the sector’s inflated price throughout the year.
Yet another prescient call came from SA contributor BOOX Research, who in January saw rough waters ahead for the crypto market.
In making its argument, BOOX highlighted the fact that market participants’ treatment of Bitcoin was similar to that shown to “high-growth momentum technology stocks and more speculative areas of the market” — a coupling that would likely continue.
This came as “macro uncertainties including rising interest rates and questions regarding the strength of the economy have added to poor sentiment towards crypto,” BOOX wrote.
Surviving 2022 … and Looking to 2023
Many aspects of this perfect storm predicted by BiotechValley Insights and others later materialized.
TerraUSD (UST-USD), the third largest stablecoin by market cap, ranked among the casualties. The crypto lost its peg to the U.S. dollar in May, pushing Bitcoin (BTC-USD) to as low as ~$30K. Its sister coin Luna (LUNA-USD) also lost market confidence.
There was further damage ahead. In the second half of the year, the market was undermined by a string of high-profile crypto-related companies falling victim to liquidity issues, including many filing for bankruptcy.
The most high profile of these was the collapse of Sam Bankman-Fried’s FTX (FTT-USD), once touted as a stabilizing force in the industry. The fallout caused a domino effect in the sector, which is yet to completely subside.
Before the FTX implosion, Chambers said “the chance of seeing $15K this year is high”. Bitcoin (BTC-USD) dropped to a low below $15.5K in November after the FTX collapse, ~77% decline from its record high of ~$69K in November 2021.
The bear market also forced crypto miners to sell assets and Bitcoin reserves, some even limiting operations or filing for bankruptcy.
SA contributor Made Easy-Finance warned of the impending doom for miners if Bitcoin (BTC-USD) fell to $10K. “Bitcoin miners might risk insolvency … we found that total all-in costs of a mining company are $25K to ~$40K per BTC,” it said.
But crypto bulls are still optimistic. BOOX Research said the FTX saga may mark a necessary reset for the crypto sector ahead of a rebound, while Knox Ridley remains bullish owing to increasing adoption of bitcoin.
This short-term bear, long-term bull sentiment was common even among the group predicting a sharp drop in 2022. In his January piece outlining the near-term bear case for Bitcoin, Chambers still contended, “Even if BTC tanks to $10,000, it’s still going to hit $100,000 come 2025/2026.”
On the other hand, many believe the crypto recovery may never materialize. “Fundamentally, I believe the market for Bitcoin and crypto should have never grown to what it is today. Already, there has been significant pain caused by its downturn. More likely than not, this pain will continue,” Daniel Jones cautioned.
Read why SA author Jeremy Blum believes investing in gold is more advantageous than cryptos.