However, long-term investors shrug off the extreme declines in the value of digital coins and the collapse of the exchanges that make them available to investors.
Bitcoin, the world’s most valuable cryptocurrency, fell to nearly $21,000 on Wednesday. It has lost a quarter of its value since Friday and is down almost 70% from its November peak of $68,000 per coin. Ether, the second most valuable digital currency, has lost about a third of its value since Friday, falling 75% from its highs. More worrying are the structural issues that make it impossible for investors to withdraw their money from crypto exchanges. Binance, the world’s largest cryptocurrency exchange, suspended withdrawals for a few hours on Monday, saying some transactions were “stuck.” The Celsius network of 1.7 million users has temporarily halted payouts due to “extreme market conditions”. They didn’t say when they would reopen exchanges, only hinting that it would “take time.”
It’s only June. Winter is coming.
So far, at least, leaders in the cryptosphere aren’t too concerned. They say this goes without saying and that a bear market in crypto is not the same as a bear market in stocks: the lows are more extreme, but so are the highs.
“Crypto bear markets typically pull down between 85% and 90%,” said Jason Yanowitz, co-founder of Blockworks, a research platform for crypto investors, executives, and builders. Over the past decade, bitcoin lost more than 80% of its value in two sustained crypto downturns, but the coin rallied — and a lot more.
During the 2017-2018 crypto bear market, Bitcoin plummeted 83% from $19,423 to $3,217. But in November 2021, the coin was valued at $68,000.
During the same period, Etherium fell from $1,448 to $85, a drop of about 95%. In November 2021, the coin was valued at $4,850. The bear market between 2013 and 2015 also saw Bitcoin fall about 82% from $1,127 to $200.
“If you bought [bitcoin] At the peak of the 2017 bull run (around $20,000), you saw an 80% drop the following year. But if you held, you would be up almost 60% right now – even after the crypto market’s recent decline from all-time highs last November,” said Felix Honigwachs, CEO of Xchange Monster.
Given how new crypto is (it started in 2009), Yanowitz said, it’s naturally more volatile. He points to Amazon (AMZN), whose stock price hit highs of $113 per share during the internet boom of the late ’90s before plunging 95% to $5.51. It closed at $102.31 on Tuesday, but before the 20-for-1 stock split took effect on June 6, it was trading well above $2,000 a share.
“I really disagree with people who say there’s no way to recover from something like this,” Yanowitz said. “I think people look at crypto and think it’s weird or that it’s not real. If you don’t believe crypto is legit, you probably think it’s overvalued.” But this drawdown isn’t nearly as bad as the last crypto bear market, he added.
Other tech stocks are significantly down at the moment, he said, not just cryptocurrencies. Shares of Uber (UBER) are down over 50% year-to-date, Lyft (LYFT) is down 67%, and Netflix (NFLX) is down nearly 72%.
Still, there are major concerns about the digital currency. Fewer investors were exposed to crypto’s steep falls during the last downturn, so more money will lose this time. Some new crypto-related ventures could also falter during the downturn in this crowded crypto market, but coin values are likely to rebound over the long term, said John Browning, co-founder and chief executive officer of BAND Financial, in a note Tuesday.
As Warren Buffett famously said, “It’s not until the tide goes out that you’ll know who’s been swimming naked.”