There are hopes that the worst for crypto might be over. Bitcoin has gained more than 15% in the past week, and two other top cryptos have surged even more.
The crypto comeback could be validation for the sector’s biggest supporters. At the same time, it should also serve as a reminder that the nascent market is likely to remain volatile for the foreseeable future.
Expect more volatility
“We will see a longer-term rally in the digital assets sector, but I wouldn’t get too excited yet,” said Joel Kruger, market strategist at LMAX Group. “This is still an emerging market.”
Kruger said that bitcoin’s rally has lagged the sharper upward moves in ether and other smaller cryptos, and remains a concern for the short term. The broader group of cryptocurrencies and stocks may not enjoy a more meaningful recovery until there is “a more healthy bounce” in bitcoin, he added.
Investors should also consider that there just may not be enough interest in crypto to justify the thousands of coins, tokens and exchanges out there. If that’s the case, only the strongest cryptos will survive and thrive.
“Crypto has seen a dotcom era-like run,” when a lot of great ideas and companies were created, Adam Grealish, head of investments at wealth management fintech Altruist, said in an email. But a number of not-so-great ideas and companies also were launched, he added.
The same scenario will likely apply to crypto. “With tougher markets, companies in weaker positions and with weaker business models will feel a lot of pressure,” Grealish said.
Don’t tell that to the crypto bulls. The broader rally is lifting shares of nearly all companies with ties to the industry. Several crypto mining firms, which use computers to solve complex mathematical equations in order to generate new bitcoins, have moved sharply higher in recent days.
So have bitcoin, ether and top crypto stocks finally hit bottom? There are some hopeful signs.
Winners and losers
It also appears that the sector’s turmoil has created a shakeout of winners and losers among both publicly traded companies and startups.
FTX recently agreed to provide a line of credit to struggling crypto firm BlockFi, and the company’s billionaire CEO, Sam Bankman-Fried, has talked about using FTX’s financial strength to bail out other floundering crypto companies as well.