This week in Crypto :Jan 1 -7

Over the last several months, we have written a lot about cryptocurrency and the unique technologies behind it. New cryptocurrencies are popping up daily, and some projects are obviously using blockchain technology better than others.   

The New Year is here, but the crypto markets still seem to lack the juice needed to pull themselves out of their doldrums. The key risk to crypto investors over the coming weeks could be the potential of the US economy weakening. Cryptocurrency prices have been under significant pressure since early 2022, as investors rotated away from riskier assets such as tech stocks.    

As far as major cryptocurrencies are concerned, bitcoin has fallen 1.13 per cent to trade at Rs 34,53,914, and Ethereum has fallen by 3.67 per cent to Rs 2,72,036. Bitcoin (BTC) traded close to $17,000 on Jan. 7, after a soaring peak in the opening week of trading late in the year. In early 2021, bitcoin prices experienced another rally, rising over 700% from March 2020 and surging past the $40,000 threshold for the first time on Jan. 7.    

The Bitcoin spike occurred when the total cryptocurrency industry market capitalization exceeded $1 trillion on Thursday, according to data tracked by CoinMarketCap and CoinGecko. Bitcoins price (BTC) is now down over 32% year-to-date, but BTC has held its own against most of its top altcoin peers.  

Litecoin (LTC) was the surprise winner this week, rising almost 7% and trading at about $75 as of Jan. 2 (see the chart below). Litecoin (LTC) has seen its price increase about 7%, with the apparent accumulation of the tokens by the Whale, which is an individual or organization holding a significant amount of the cryptocurrency. Whales, or major players in the crypto markets, appear to be flocking towards the coin, amassing it in especially large volumes.   

Glassnode, which provides insights into blockchain data, notes that there has been an uptick in retail interest in Bitcoin over the past several weeks, with bitcoin addresses, or wallets holding any amount of Bitcoin that is not a nil, reaching a record-high level of over 33 million. Institutional investors are likely to be the primary cause behind positive price movements for Bitcoin (BTC) and Ethereum (ETH) during the final weeks of May.  

Ethereum (ETH) prices fell by over 30%, ending May below $2000, before Ethereum 2.0, which is scheduled to switch from the Proof-of-Work consensus mechanism to the Proof-of-Stake model by the end of this year.   

Bitcoin has shown a similar consistent increase in value over the years to every other cryptocurrency on the market, so it is reasonable that bitcoin investors are interested to see just how high bitcoin might eventually rise. Conservative bitcoin predictions suggest that the cryptocurrency will hit $100,000 by 2023, but more optimistic crypto enthusiasts claim $250,000 is within reach. A recent study from Deutsche Bank found about one-quarter of bitcoin investors think bitcoins price will exceed $110,000 within five years.    

The crypto market is subject to rapid changes of fortune, so investors could be better off in 2023 earlier than expected. We are seeing cryptocurrencies at an early, but not too early, investment phase, which is why we are emphasizing education for investors. 

Finally, cryptocurrencies are a different type of investment, and this has made cryptos difficult to understand and invest in. Bitcoin and Ethereum are two of the largest cryptocurrencies in terms of market capitalization and trading volumes, but when you look beyond their shared popularity, they are quite different.   

For investors looking today to see whether we are an early adopter or an early adopter of crypto investments, looking back to tech investments from the mid-to-late 90s seems prudent. Chart 4 helps to visually illustrate why we think that crypto could be reaching a point of inflection for adoption similar to the Internet was at during the mid-to-late 1990s. Interestingly, those adoption rates are similar to what we are seeing with cryptocurrency today.

The top cryptocurrencies that people said they used to pay fraudsters were bitcoin (70%), Tether (10%), and ether (9%). People between 20-49 years of age were more than three times more likely than older age groups to say they lost cryptocurrency to a scammer. Since early 2021, over 46,000 individuals reported losing more than $1 billion worth of crypto to fraudsters — this is roughly one in four dollars reported lost, higher than for any other form of payment.

Romance fraud is the next-closest behind investment fraud, with $185 million reported lost crypto since 2021 – that is almost one in three dollars reported lost to a romance fraud in the year 2021. Crimes related to cryptocurrency rose to a new high of $14 billion in 2021, according to blockchain analytics company Chainalysis in their annual report on crypto crimes, released yesterday. The cryptocurrency crash of 2018 (also known as the bitcoin crash and the Great crypto crash ) was a selling-off of a majority of cryptocurrencies starting in January 2018. 

Subsequently, almost all other cryptocurrencies that had also peaked between December 2017 and January 2018, followed the bitcoin crash. Bitcoins price, for instance, has compounded at an annual rate of 216% since the first recorded transactions in 2010. Bitcoin, for instance, is the oldest, and perhaps among the least volatile, of cryptocurrencies, yet is still about four times as volatile as gold  and the basket of world stocks

On the inflation front, cryptocurrency investors should watch for the Labor Departments Consumer Price Index (CPI) for the month of May, due on June 10. The CPI data will provide an update for the crypto markets as to how well the Feds initial interest rate increase is working in alleviating inflation.