Ethereum or Bitcoin: Which Will Recover 1st in 2023?

The cryptocurrency crash keeps getting deeper. Which crypto will post a quicker recovery? Bitcoin or Ethereum?

stock research, analyze data

Image source: Getty Images

It appears as though cryptocurrency investors have to hold on for a prolonged bear run. The cryptocurrency industry enjoyed a stellar year in 2021, as several major and minor crypto tokens soared to great heights. 2022 has painted a completely different picture for crypto investors, as they continue to lose money left, right, and centre.

The brutal selloff that began with the TerraUSD and Luna crash has catalyzed an industry-wide meltdown. With over US$2 trillion already wiped off the crypto market, it appears as though further losses are on the way. Analysts anticipate this crypto winter to purge the industry of several “junk” coins and leave only the most resilient decentralized assets standing.

Ethereum (CRYPTO:ETH) and Bitcoin (CRYPTO:BTC) are two of the largest cryptocurrencies by market value, with a US$127.46 billion and US$371.44 billion market capitalization, respectively. In the event that the crypto winter wipes out many crypto tokens, these two giants in the industry are slated to remain standing. The question is, which one will post a quicker recovery if the crypto crash loses steam in 2023?

Let’s take a look at what is happening and what could happen in the coming months.

Why is the crypto winter here?

Despite being touted as an alternative financial system to the traditional centralized economy, the cryptocurrency industry has correlated strongly to the performance of the broader economy.

The performance of Bitcoin, Ethereum, and other cryptocurrencies has been strongly linked to the stock market this year — more than ever before. The only difference is a much more substantial degree of volatility in the decentralized asset class.

No matter how much cryptocurrency enthusiasts would like for the crypto industry to be separate from the economy, tightening economic policies are a major contributor to the onset of the crypto winter. High inflation has sparked a series of interest rate hikes by central banks in the U.S. and Canada.

The U.S. Federal Reserve’s announcement of a 75-basis-point interest rate hike battered valuations for high-risk assets, including cryptocurrencies.

The low-interest-rate environment during the pandemic has ended, and speculative assets are facing the brunt of its impact. The recent de-pegging in stablecoins and withdrawal freezes by several major crypto exchanges have also added to the volatility in recent weeks.

Unfortunately, the instability might continue in the coming months. Inflation is still at high levels, and the U.S. Fed and Bank of Canada will likely enact further interest rate hikes to make a substantial impact.

Weaker borrowing activity due to higher interest rates might prevent substantial cash flows toward the crypto market, sustaining the weakness in the market. Of course, it is only speculation, and things could take a drastic turn at any point in the coming weeks.

Foolish takeaway

As things stand, the question is whether cryptocurrencies will even recover and, if they do, how long it will take. We are past the halfway mark in 2022, and Bitcoin and Ethereum are down by 59% and 70.83% year to date at writing, respectively.

Ethereum boasts a more robust platform in terms of its practical use cases and plays a central role in the DeFi economy. Though it lacks the use cases of Ethereum, Bitcoin has historically been the more resilient of the two.

Supposing the crypto meltdown loses steam in the coming months, Bitcoin could be the likelier of the two to post a recovery.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Bitcoin and Ethereum.

More on Investing

Target. Stand out from the crowd
Stocks for Beginners

2 No-Brainer Stocks to Buy With $7,000

Got some cash to fill up your TFSA? Here are two stocks that look like good buys on the recent…

Read more »

Path to retirement
Retirement

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Retirement

Future retirees can use the RRSP to save for retirement and be financially secure with the help of a Dividend…

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Investing

2 Utility Stocks That Could Help Energize the AI Boom

Canadian Utilities (TSX:CU) and another great utility stock could indirectly benefit from the rise of AI.

Read more »

top TSX stocks to buy
Stocks for Beginners

3 Stocks That Can Help You to Get Richer in 2024

These three stocks have already proven their worth this year, but are set to continue climbing in 2024 and even…

Read more »

Woman has an idea
Dividend Stocks

3 No-Brainer Best Dividend Stocks in Canada to Buy With $500 Right Now

Are you craving more cash flow? $500 in one of these best dividend stocks in Canada might deliver a slice…

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

5 Stocks Whose Dividends Just Keep Growing

Stocks like Enbridge and Fortis are growing their dividends for decades, and returning higher cash to their shareholders.

Read more »

Man considering whether to sell or buy
Tech Stocks

BlackBerry Stock Is Down 20%: Buy the Dip or Call It a Pass?

BlackBerry stock has seen a series of 20% monthly dips since December 2023. Should you buy the dip or call…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Investing

3 High-Flying TSX Stocks That Could Keep On Climbing

These high-flying TSX growth stocks certainly have the potential for more upside over the long term, if secular growth trends…

Read more »