Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) had strong momentum last year but lost steam in December 2021. January 2022 was a weak month, too, given the 19.3% and 27% overall losses of BTC and ETH, respectively. Nevertheless, crypto bulls believe recovery is possible in February after both cryptos finished the previous month on a positive note. BTC advanced 1.5%, while ETH climbed 3.3%.
The remarkable run of the world’s top two digital assets in 2021 prompted loyal followers to make bold predictions for 2022. Their magic number for Bitcoin is US$100,000, or a 160% jump from its current price. Ethereum rose to as high as US$4,812.09 on November 8, 2021, so it’s possible it could climb by the same percentage as Bitcoin.
However, crypto investors should manage their sky-high expectations of Bitcoin and Ethereum. The optimistic predictions may not be realistic if the selling pressure and shift from risky assets continue. Digital assets are risky investments, and therefore, the chances of a meteoric rise and dramatic fall are equal.
Crypto winter like in 2018
BTC, ETH, and other cryptocurrencies are bigger than they ever were. However, a chief market strategist has a warning. Troy Gayeski from FS Investments, said, “Crypto is a very volatile asset class, and I hope that everyone participating in that market is aware of the volatility potential.”
Gayeski adds, “It’s a much trickier environment than it was six months ago, 12 months ago, 18 months ago where it was green-light go. Now it’s yellow-light caution.” His final advice is to avoid owning cryptos if you’re uncomfortable to a 30%, 40%, even 50% decline for whatever reason.
Ethereum displays the same volatility despite the 558.9% monumental climb from US$730.37 on January 1, 2021, to US$4,812.09 in 10 months. The crypto has been on a tailspin since to end 44.1% lower on January 31, 2022. Right now, the crypto winter, like in 2018, is back.
Negative market outlook
The memories of 2018 haunt crypto investors because a repeat of that episode could be happening in 2022. Bitcoin fell by approximately 80% and took more than 12 months to reach another high. Based on data from Goldman Sachs, Bitcoin’s average decline lasts for seven to eight months, and its largest cumulative decline or loss was 93% (2011).
Nicholas Cawley, a strategist at DailyFX, said, “If the market as a whole is looking to Bitcoin to lead the way higher, it is most likely to be disappointed.” He believes the outlook for the cryptocurrency market as a whole remains negative with heavy losses seen across a range of once-popular altcoins.
People have this fear of missing out on cryptos because of Bitcoin has delivered outsized or enormous returns. Some crypto analysts even say cryptocurrencies are hedges against rising inflation and could supplant traditional gold as the typical store of value.
Bitcoin and Ethereum are the blue-chip coins today, although smaller cryptos are starting to eat up their market shares. The popularity of the top two digital assets could diminish if new market players have offer greater functionality and utility. Still, the bold predictions of crypto bulls won’t happen in 2022.