The crypto bear market can last for two years, say top investors

Cryptocurrencies are known for their wild price fluctuations, and in their short history they have gone through several cycles of scorching summers followed by icy, long winters. The last downturn began in early 2018 and lasted for about two and a half years.

Over the past three months, with rising inflation and recession concerns, bitcoin has fallen from a maximum of $ 48,000 to about $ 21,000. Today, some top investors believe that we are in for another painful, longer period of low prices.

“The next two years are going to be very tough,” said Avichal Garg, a managing partner of Electrical Capital, a cryptocurrency investment fund with more than $ 1 billion in assets. His basic view of the industry’s promise has not changed. “New software developers are coming in, and we’re seeing more and more high – quality founders. We see Web2 leaders from Facebook and Google coming in for a faster clip, he says. But one big factor has supporters particularly nervous: “This is the first time crypto and Web3 have existed in a macroeconomic bear market environment, where there could potentially be a recession next year,” says Garg. (Bitcoin was created in early 2009, shortly before the end of the financial crisis.)

Alex Pack, a managing partner of Hack VC, a $ 200 million (assets) cryptocurrency fund, agrees. “One to two years is what everyone says … And that’s what we tell our portfolio companies – make sure you have two years of runway.”

Beyond broader financial concerns and the recent collapse of the “stable currency” TerraUSD, great doubt has spread about the cryptocurrency lending platform Celsius. After the recently frozen withdrawal, many question the solvency. “Always be wary, even in a beef market, when some of these platforms promise really high interest rates,” says Linda Xie, co-head of the cryptocurrency fund Scalar Capital. “Sometimes it sounds too good to be true, and it’s because it’s. There can be a lot of influence and high-risk activity going on behind the scenes. “

Despite the many reasons for concern, crypto investors seem to be more optimistic so far than they were during the recent downturn from 2018 to 2019. “There was a genuine concern among many investors and developers that crypto as an asset class would not come back from the 2017 heights, says Pack. That fear disappeared in December 2020, when bitcoin peaked at $ 20,000. Pack and Xie believe the industry is in a stronger place now because there are more utility cases and users of cryptocurrency. For example, digital art NFT (nonfungible tokens) has attracted millions of buyers. “Decentralized finance” applications, such as software that allows people to earn interest on deposits, have grown steadily, although some have also flared up in a spectacular way.

What does it take for prices to fall? The stock market must recover, some say. “We will need to see stocks turn around before real capital flows back into bitcoin,” said Joshua Lim, CEO and head of derivatives at crypto prime brokerage Genesis. Tarun Chitra, a digital asset investor and CEO of the startup Gauntlet for cryptocurrency risk modeling, has a similar view: “I expect cryptocurrencies and growth stocks to continue to be correlated for 12 to 18 months.”