Investor Confidence Is Stiflin – GuruFocus.com

The crypto market is starting to unravel, and fast.

The world’s largest cryptocurrency, Bitcoin, shed around 6% within the first full week of September as prices fell below the $19,000 threshold for the first time in months. By market value, this was a loss of about $1,000.

As prices slowly rebounded, before slipping back down again, investors have been left with an uneasy feeling as changing economic cycles and fears over the Federal Reserve’s hawkish monetary policy have been haunting traditional markets for much of the second half of 2022.

Across the board, the crypto market has been treading choppy waters. The low-swinging prices of Bitcoin, Ethereum and other cryptocurrencies have led to another round of mass selloffs, pushing the sector’s market value below $1 trillion.

Major uncertainty, extreme volatility and bearish market sentiment have made conditions deteriorate faster. Despite these conditions, some crypto enthusiasts remain bullish over a potential flip that would see prices shoot up again in the early part of 2023.

In terms of macro performance, surging interest rates and rampant inflation are adding more pressure on markets, and crypto is no exception.

Slowdown in crypto investments

As prices retreat further, analysts have found that crypto-based investments have been shrinking for most of the year. A report by global auditing and consulting firm KPMG confirmed this, highlighting the downturn in global investments in crypto companies and overall crypto-based assets.

According to the report, investments in crypto companies have fallen to $14.2 billion for the first half of 2022. That is more than half of the $32.1 billion recorded for the same period last year.

Analysts predict the fall will continue for most of the year, and companies will see investment sentiment shrink even further by the start of 2023.

The sudden turnaround of investor confidence comes after a tumultuous year on both crypto markets and major U.S. indexes.

Others argue the slowdown in investment incomes resulted from Bitcoin’s hawkish performance, which reached $17,600 in June, marking its lowest price for 2022. So far, the price of the cryptocurrency has come down by more than 50% this year alone.

Investors are changing their portfolios and are looking for intuitive ways to shield themselves from a possible recession, which for the most part has kept many investors on their toes this year.

Aside from this, a change in interest is also fueling a decrease in crypto investments. The same KPMG report highlighted that some investors may soon start switching their interests, opting to support projects they feel can drive meaningful monetary growth.

Although investors are switching up their interests – for crypto – other areas of the market such as blockchain technology and decentralized finance (DeFi) remain critical areas for the sector and for investors who are looking to underpin these technologies.

Well-managed companies that have incorporated steadfast strategies in their framework will be able to ride out most of the uncertainty that both investors and the markets have brought about in recent months.

What’s more is that sentiment surrounding blockchain-based companies and public stock options have also come down as a chain reaction to Bitcoin’s slow performance in the last few months.

Riot Blockchain (RIOT, Financial) saw share prices tumble by 5% in post-earnings call, after the company missed both its top- and bottom-line performance. The results were due to the company’s large non-cash impairment charges, which are directly tied to its Bitcoin holdings.

Applied Blockchain (APLD, Financial) is another company whose stock options have also not been left untouched by the rowdy performance of the broader crypto market. Stock prices are down by 11%, and this could even be a bigger blow to insider shareholders who recently purchased around $220,000 worth of the stock. These initial investments are now worth $171,000.

The good news, however, is that some major institutional investors remain bullish over market conditions and that of Bitcoin.

Recently, Bloomberg analyst Mike McGlone said, “Bitcoin is a wild card that’s more ripe to outperform when stocks bottom, but transitioning to be more like gold and bonds.”

The ongoing price movements and the Fed’s monetary tightening will determine the price direction of both stock markets and crypto markets. Despite the disparity, there are at least still some analysts that feel crypto will be able to outperform traditional stocks in the coming months. It is a big swing, but it could be toward the direction investors are holding out for.

Ethereum Merge could drive further change

The coming weeks will also be a crucial time for the crypto market as the long-awaited Ethereum Merge is set to take place on Sept. 13.

For months many in the industry have been speculating over the upgrade, which would see the Ethereum network shift from proof-of-stake (PoS) to a proof-of-work (PoW) system, dubbed the “consensus mechanism.”

Many are still on the fence on whether the Merge will make a significant difference to the price of ether, yet others suggest it could spark a mass buying spree.

Aside from Ethereum, the Merge has already impacted other cryptos in the market as well. On Sept. 6, around 1,000 of the biggest Ethereum whales purchased more than 475 billion Shiba coins, or SHIB tokens. The purchase amounted to more than $6 million in fiat equivalent.

So why the sudden interest in SHIB tokens?

Some have argued on social networks and other online forums that the tokens may be positively impacted by the Merge.

Seeing as the Shiba Coin runs on Ethereum protocols, many believe the Merge would help generate faster transfers, lower fees and could further drive mass adoption.

On the bright side, some argue the Merge could help revive the market. But then again, some say this could only fuel a faster and more severe crash for the crypto market.

The Merge might push market sentiment into new territories, yet some have claimed Ethereum has too much overarching influence and that the 400 decentralized apps that run on it could help kickstart a better overall attitude for the crypto market.

The bottom line

It is hard to place oneself in the current state of things. The crypto market has significantly shrunk over the last few months, and expert analysts suggest it will continue to do so well into the new year as well.

The possibility of revival is what is keeping some retail investors interested at the moment, but the majority of the crypto market is still mainly driven by institutional and commercial investors. The slowdown in investments is a reflection of how confidence has come down over time, but things can experience a turnaround again.

The bottom line is that with most markets, and especially the crypto market, it is best to remain steadfast in your strategy and keep a solid eye on key performance indicators. Consider what’s driving the needle, and have an exit if necessary. The best is to be prepared and shield yourself against any possible turndowns. Overall, it can go up just as easily as it went down.

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