Out of the Cold? Fund Managers Say Crypto Winter to End Soon

The crypto meltdown will end soon, with top cryptocurrencies predicted to regain lost glory next year on the return of risk-taking trades to the fore, as the hit from global gloom and the US Federal Reserve’s aggressive rate hikes start to fade, according to a Blockhead survey.

The world’s top two cryptocurrencies by market capitalization – Bitcoin and Ether – recovered strongly in July after falling for several months, during which cryptocurrencies had slumped by over half their value from their peaks late last year.

The moves in July were noteworthy, with Bitcoin jumping over 17% last month, marking its greatest result since October, and Ether registered its highest monthly gain since January 2021, rising by 57%.

Despite the good news for cryptos, they are still far away from their previous peaks, with Bitcoin languishing near US$21,500, a distance from its highs of US$60,000.

Bitcoin is expected to consolidate around the $22,000 mark by the end of September, according to a Blockhead survey of 20 analysts at research and investment management firms conducted after the Fed’s July meeting and repolled post-US inflation data.

The world’s largest cryptocurrency was forecast to climb to US$29,500 by the end of this year, rise to US$35,000 by mid-2023, and jump by more than double its current value to US$45,000 by the end of 2023.

A similar survey conducted in June predicted US$29,750 by end-September, and a rise to US$30,500 by the end of this year.

In the latest poll, predictions for Bitcoin ranged from US$20,000 to US$35,000 by the end of this year, compared to the US$20,000 to US$45,000 forecast in June and projections of US$25,000 and US$50,000 range, when the survey was conducted in April.

Fforecasts in the August survey ranged from a low of US$15,000 to a high of US$60,000 for Bitcoin by the end of next year

“In terms of ‘normality’ or the hopes of a return to the highs of 2021 anytime soon, there is still an unquestionably significant mountain to climb,” said a fund manager at a large asset management firm in Europe specializing in digital asset custody solutions for institutional investors.

“But that is the picture for this year. Bitcoin will roar back next year,” added the fund manager.

This sentiment was also clear from responses to an additional question in the survey.

Indeed, when asked if cryptocurrencies were bottoming out as crypto winter creeps into August, 75% of the respondents said “No.”

But analysts are expecting the worst of crypto winter to be over by the end of the next quarter.

Ether to Nearly Double, on Verge of “Merge“

Ethereum was predicted to recover to US$1,850 by end-December, US$2,500 by mid-2023, and jump by 88.7% to US$3,200 by the end of next year from current levels of around US$1,600.

In the previous survey in June, Ethereum was forecast to weaken to US$1,750 by end-December, and recover to US$2,500 by the mid-2023, from around the US$1,800 mark it was trading at back then.

Forecasts in the latest poll ranged between US$1,500 to US$3,000 by the end of this year, compared to the US$1,200 to US$3,000 predicted in the previous survey.

With Ethereum’s mega-upgrade finally set to happen in September, the predictions for end-2023 ranged from a low of US$2,500 to a high of US$5,500, suggesting a significant jump from current levels.

The “Merge” in September comes after years of delays, with the blockchain’s underlying encryption undergoing a major change to a system where the production of new ether tokens becomes far less energy-intensive.

Investors seem to agree, with Ether outstripping big brother Bitcoin.

Indeed, while it’s far off its November 2021 all-time high of US$4,868.79, Ether has witnessed increases for six straight weeks, taking it up from a 1-1/2-year low of US$880 in mid-June to values approaching $2,000 before it’s current downturn to US$1,600 – the cryptocurrency is down about 20% in the past week.

Ether is eroding behemoth bitcoin’s market share: according to CoinMarketCap, it now represents nearly one-fifth, or 19.7%, of the total cryptocurrency market value of $1.14 trillion, up from less than 14.9% two months ago. The share of bitcoin has decreased over the same period, from 44.9% to 40.2%.

If Ethereum’s developers are successful, as is widely anticipated, it might revolutionize the blockchain by making it easier to use and more affordable to mine for fintech and other cryptocurrency businesses.

Of course, there are many uncertainties surrounding the elusive shift, which has been postponed multiple times. Most recently, developers abandoned plans to activate the switch in June, which alarmed investors who began to worry that it would never happen.

The Merge is also risky, and should it fail, the fate of the about 122 million Ether in circulation, valued at nearly US$232 billion, could be in jeopardy.

Read more: A Forking Catastrophe

Cryptos Beat the Chills in July

After crashing most of the year, bitcoin prices significantly recovered last month. Gains were not confined to bitcoin.

CoinGecko data showed that the market capitalization of all cryptocurrencies rose beyond US$1.15 trillion last month, gaining more than US$255 billion since the end of June.

According to data firm CryptoCompare, assets under management in digital asset investment products increased 16.9% to US$25.9 billion in July, reversing a decline of 36.8% in June. The value of cryptocurrency derivatives traded on centralized exchanges grew to US$3.12 trillion in July, a 13% monthly rise.

The derivatives market now accounts for 69% of all cryptocurrency volumes, up from 66% in June, and it helped the total amount of cryptocurrency traded on exchanges reach US$4.51 trillion in July.

While the market crash In May and June pushed an implosion of crypto firms with lenders freezing customer withdrawals and digital assets companies slashing jobs, long-term investors said that was the norm of the current market situation.

“I think the commentary on job cuts and troubles with crypto firms is unfair. Most major companies, including Tesla, Apple, Meta, etc., have announced significant layoffs on expectations of a global economic slowdown,” said the head of research for alternative investments at a large investment firm in London.

“So, singling out a particular sector during these tumultuous times is not just unfair bit inaccurate too,” she added.

Bitcoin No Longer Seen as a Portfolio Hedge

The recent crypto market rally mirrored advances in riskier assets like equities as investors bet that economic weakness would prevent the Fed from quickly tightening monetary policy, or if the US has a protracted recession and the central bank there is compelled to lower interest rates.

Broad global economic themes have dominated the market rout and the trading pattern in cryptos this year, the resultant inflation and involuntary monetary policy response this year, rather than digital currencies seen as a portfolio hedge, like before.

Indeed, Bitcoin has been directly correlated with the Nasdaq consistently since late November, unlike in previous years when they moved in opposite directions.

The latest was the convergence in July when the leading cryptocurrency gained and moved directly in tandem with the rise in equities.

“We (institutional investors) and retail investors are looking at bitcoin like any other traditional asset,” said a chief investment officer of a large US asset management firm in Boston. “And so, when the market turns, and it will turn, we expect retail investors to come back and invest in crypto.”

But some long-term investors do not agree and predict a reversal once the world returns to normal.

“These are unprecedented times; everyone seems to have forgotten that we have a war going on at the edge of Europe resulting in multi-year high inflation globally, resulting in unusual financial market moves, with the losses not restricted to digital currencies alone,” said the chief investment officer at a big investment firm in London.

“Why are we talking only about ‘crypto winter.’ This year has been a broad financial market meltdown. The depth of the global equities slump, the euro/dollar parity breach for the first time in nearly two decades are other examples of extraordinary moves in traditional assets,” he added.