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Fierce headwinds have crypto and equity markets eyeing June 2022’s year-lows once again. With a mission to get inflation under control, policymakers around the world have hiked interest rates at a furious pace. Even the most bullish have largely accepted the inevitability of a global recession. Against this backdrop, some argue the investment case for cryptocurrency has never been more unfavorable.
But while short term volatility may claim the headlines, most savvy investors are focused on the long term play. Crypto adoption soared over the recent bull market, with estimates suggesting around 106 million people worldwide own some form of digital asset.
Cyclical asset
Like any other asset class, crypto is cyclical. However, over its eleven-year and four-market-cycle history, the entire cryptocurrency space has become increasingly resilient with each successive cycle. Prices remain well above levels seen prior to 2020 even with the recent downturn. Bitcoin found support at its 2017 all-time high, a level thought unreachable until the fourth quarter of 2020. Future price action is hard to predict, but the improvements made in this cycle could well be reflected in subsequent cycles.
Most interestingly, the pace of adoption has been greater in emerging markets, particularly in economies that rely heavily on remittances or that cope with a more volatile fiat currency and less reliant banking system. In countries ravaged by hyperinflation, such as Argentina, cryptocurrencies have quickly gained ground among the populace. Historically, technological and financial innovations have been promptly monopolised by incumbents in high income countries, but one of the most exciting aspects of crypto is it remains very much a grassroots global movement. Cryptocurrencies aren’t just a speculative asset; to different people they’re simultaneously an international payments mechanism, a proof of ownership tool, and a means to enhance diversification in an investment portfolio.
The diversification of utility is reflected in an explosion in the variations of crypto and digital assets themselves. After Bitcoin in 2009, open-source innovation sparked development of networks like Ethereum. They led to a vibrant, permissionless decentralised finance space and non-fungible tokens (NFTs). As of May 2022, approximately $37 billion has been invested into NFTs, putting it well on track to exceed the total $40 billion invested into the space in 2021. Despite the downturn, the number of active NFT buyers and sellers has increased every quarter since Q2 2020 since Q2 2020.
Likely drivers
Each successive crypto market cycle improves upon the innovations of the prior. They provide innovators and entrepreneurs with the opportunity to both develop and test their protocols, services and products. Crypto winters, like the one we’re in now, provide project leaders with the space to reflect and ask questions like, “Where can we improve?” and “How can we do better?” The advances made in this bear market – such as the recent Ethereum Merge – are likely drivers for the next bull market.
Cryptocurrencies are helping to facilitate the development of a full web-based economy, one built on the core principles of financial freedom and inclusion. Earlier this year, a study by Fortune Business Insights predicted the global cryptocurrency market would grow at a compound annual growth rate of 11.1% by 2028. With investor confidence still at all-time highs, and countries such as the UAE committed to becoming global leaders in the space, this growth trajectory looks entirely realistic.