Bitcoin Falls 65% in 2022 Failing to Live Up to the Store of Wealth Billing

Leading cryptocurrency Bitcoin in 2022 failed to live up to its desired purpose esposed by its proponents as being a safe asset that only went up and was disconnected from fiat currencies. In 2022 Bitcoin dropped 65%, Solana collapsed 94%, Cardano 81% and Ethereum lost 68%. BTC was hovering around $16,500 on December 30, well below its all-time high of nearly $70,000 hit in November 2021. The fall coincided with the rise in interest rates and the strength of the US dollar, something Bitcoin we were told was immune from.

Exacerbating the selloff was the collapse of TerraUSD, which crashed virtually 100%, breaking its $1 peg, and later the implosion of FTX, the world’s second-largest crypto exchange.

“The cryptocurrency TerraUSD had one job: Maintain its value at $1 per coin. Since it launched in 2020, it had mostly done that, rarely straying more than a fraction of a penny from its intended price. That made it an island of stability, a place where traders and investors could stash their funds in between forays into the otherwise frenzied crypto market. This week TerraUSD became part of the frenzy too, slumping by more than a third on Monday and then tumbling as low as 23 cents on Wednesday. The collapse saddled investors with billions of dollars in losses. It ricocheted back into other cryptocurrencies…”

May 12 – Wall Street Journal (Alexander Osipovich and Caitlin Ostroff)

Crypto industry bankruptcies included hedge fund Three Arrows Capital, Singapore-based 3AC, Voyager Digital, Celsius Network, BlockFi and Core Scientific. The epitome of greed, fraud and ignorance was FTX. Wunderkind Sam Bankman-Fried (SBF) was lauded by MSN and politicians at peak Bubble “wealth” estimated at $26 billion, he proceeded to leave a $8 billion hole, after switching customer funds for his own benefit.

We have seen what you would expect from a 5 wave impulse peak and ABC correction, a violent correction and completion. Use Murrey Math levels for corrections and targets as algorithms control the herd here, support is the cloud and sharp ABC, 1-2 moves. From there prices agitated towards those ATHs as news of a Bitcoin ETF fueled the rally, sound familiar? But this time it wasn’t signaling we are in a 3 high probability but a 5.

KnovaWave

What was telling of the whole FTX saga was despite this he was still lauded and had puff pieces written for him by the NYT and others, got a standing ovation at a Deal book seminar and his involvement in the DNC with his parents underscored just another thing rotten with US politics and business. SBF is now under court-ordered detention at his parent’s California home on a $250 million bond (facing eight federal counts of “wire fraud, money laundering, and conspiracy, carrying a maximum of 115 years in federal prison”). Let us hope this was peak ignorance and wanton greed and markets grab sturdier legs going forward.

Kryptonite

A year ago, a flood of money supply and ultra-low or zero interest rates sparked a buy-everything rally, with Goldman Sachs even describing bitcoin as the new gold. However, as 2022 rolled out, soaring inflation and tightening financial conditions were two ingredients that made one of the largest bubbles in history burst, with an industry once valued at roughly $3 trillion now sitting at around $900 billion.

The gigantic “tech” Bubble popped ad nauseum in the high-risk places, crypto, stocks, venture capital, SPACs, private equity and the unintended consequences from that. Swirling greed and know it all came home to roost. FOMO (fear of missing out) and TINA (there is no alternative) ended how they always do.

From The TradersCommunity Research Desk