A year ago, crypto analysts, riding high from the successes of 2021, had big hopes for bitcoin, with some of them seeing the token hitting US$100,000 or more last year.
That is a far reach from where the coin ended this annus horribilis: US$16,500.
Bitcoin, weighed down by a hawkish US Federal Reserve, a string of scandals and implosions of the crypto space’s once-vaunted projects, lost more than 60 percent last year, its second-worst annual performance on record, and only its third down year.
Photo: Reuters
Other cryptocurrencies also suffered, with ether losing about 70 percent and an index of the 100 largest coins dropping about 65 percent.
“People did not understand how much of an ‘easy money’ asset class cryptocurrencies were in 2020 and 2021,” said Matt Maley, a senior market strategist at Miller Tabak and Co.
“Some cryptos will survive and even thrive in the future, but they moved way too far, way too fast after the Fed engaged in their zero interest rate and massive quantitative easing policies. Now that these programs have disappeared, it’s going to take a lot longer for the crypto asset class to reach its full potential,” he said.
Fundstrat Global Advisors LLC managing partner Tom Lee at the end of 2021 said the coin could easily reach US$100,000 last year and that the US$200,000 range was achievable.
“I know it sounds fantastical, but it’s very useful,” Lee said.
In January last year, Goldman Sachs Group Inc strategists predicted that bitcoin could reach US$100,000 over five years, as it took market share from gold.
Crypto advocate Mike Novogratz had called for the token to reach US$500,000 in the same time frame, a projection he then dropped at the beginning of last month.
The US$100,000-plus price predictions showed “how influenced most of us still are by recency bias,” said Noelle Acheson, author of the Crypto Is Macro Now newsletter.
However, perhaps none have been bolder than Ark Investment Management LLC chief executive officer Cathie Wood, who at the end of November reiterated her bitcoin target of US$1 million by 2030 — about a 6,000 percent increase from current levels.
“Sometimes you need to go through crises to see the survivors,” Wood told Bloomberg Television at the time. “We think bitcoin is coming out of this smelling like a rose.”
Plenty of strategists at the start of last year misread how aggressive the US central bank was going to be with its interest-rate hikes, as it worked to tame inflation.
Other central banks around the world also raised rates, creating an undesirable environment for risky assets such as crypto — and a big change from the heady days of 2020 and 2021, when rates were low.
Crypto-centric stocks also got clobbered last year, with Coinbase Global Inc and Marathon Digital Holdings Inc each shedding about 90 percent, Riot Blockchain Inc losing 85 percent and MicroStrategy Inc down by 74 percent.
“2020 to 2021 was a zero-interest rate policy party, rewarding the most suave party attendants for extreme risk-taking,” Arcane Research senior analyst Vetle Lunde wrote in a report.
On the other hand, “2022 has been a year-long hangover,” he said, adding that “fortune did not favor the brave, and we entered a consistent doom cycle of default, fraud and contagion.”
From the implosion of the Terra blockchain, which brought down a number of crypto lenders, to FTX’s bankruptcy, last year served up blow after blow for the industry.
Lunde said that his firm’s “Liquid Tradeable BTC” proxy has fallen to June 2020 lows, and that exchange balances have also dropped, which has implications for bitcoin liquidity.
He expects the market to calm down this year, but does not see prices reaching former all-time highs during the stretch — although bitcoin could close out the year higher than where it started.
“In 2022, the naked swimmers were exposed and bad apples got eliminated,” he said. “Over the last year, we have relearned an old bitcoin slogan — trust no one.”
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