Crypto winter 2022: Downturn as an opportunity to buy
Jun 21, 2022
We've seen quite a few crypto winters before, but we've never had a crypto winter while interest rates are rising and the Federal Reserve is moving to a quantitative tightening policy. How worried should we be about the sell-off in crypto and what is the correlation between crypto assets and other more traditional risk assets? Are crypto assets currently still interesting as an investment?
There are different types of crypto businesses – those that use leverage and those that don’t. When you own a highly volatile asset and have the backbone to use leverage to increase returns, you also take on additional downside risk if there is a major correction like the one happening right now. Crypto company Celsius (CEL) is a good example of this. There are always some companies that are badly run or heavily indebted that go bankrupt. These companies are not transparent and will be destroyed. Risk management is paramount, the fundamentals of finance aren't going away just because these companies are in a new asset class. Managing liabilities, assets and maturity is really important. Risk management is often ignored when prices are rising, but now, when the numbers are falling, we see who wasn't managing risk properly. In fact, that's a good thing for everyone else who survives because everyone will learn from it. A market correction like the one we've been experiencing lately tends to be the start of a new process.
Michael Saylor, the CEO of Microstrategy, explained exactly why, after buying $4 billion worth of Bitcoin and now that Microstrategy is down on that trade, he still thinks buying Bitcoin is a great idea. In fact, he even says that: “[…] over any time – two years, four years, eight years – Bitcoin is the best performing asset. If you think about Bitcoin at a time horizon of one month it looks like a volatile risk asset but if the time horizon 10 years it looks like a risk-off store of value asset. The crossover point is four years. Nobody’s ever lost money investing in Bitcoin for four years. [..] It is a great buy opportunity? Absolutely. Bitcoin is backed by the most powerful secure computer network in the world. If I give you a hundred billion dollars you can’t reproduce it. And it’s beyond a nation-state attack or corporate attack, so once you understand that and the fact that it is the singularity there is nothing like it in the world, then this is an ideal entry point to get into this.“
As we continue to look to the future, Bitcoin's underlying fundamentals, from hash rate to Lightning Network capacity, are making all-time highs. Additionally, Bitcoin continues to gain global acceptance. The blockchain continues to run rock solid, now for over 12 years. The current price distortions will not change that.
When it comes to asset investing, the amount of bad news is almost endless these days. The question is, can this flood of information be "properly" absorbed? Do you really think that in the future - 5 years, 10 years, 15 years - crypto and blockchain assets will continue to exist? If you believe in it, you should have some money in Bitcoin and crypto market. What are you willing to buy and keep forever? Anyone who becomes restless in such market phases should consider why they are investing in Bitcoin and Co.