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Cryptocurrencies Not Out of the Woods Yet; Charm, Allure to Return Next Year

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“Crypto winter” will continue despite the first signs of a thaw recently, according to a Blockhead survey of analysts at research and investment management firms, who bet on more pain ahead for Bitcoin and Ethereum, but expect a bottom at the turn of the year, with a strong recovery in 2023.

Digital assets have been whiplashed and routed, as cryptos took a hit on concerns about surging inflation from the Russia-Ukraine war and the resultant global monetary tightening.

Bitcoin has cratered by about half its value since its peak in November last year and is down by around a third this year, languishing near US$30,000.

The Blockhead survey of 20 analysts at research and investment management firms conducted between May 20 and June 8 showed Bitcoin and Ethereum will lose some ground further before turning the corner by the end of this year and recover strongly in the first half of 2023.

“The tough crypto winter will last a few months more. While we are closer to the bottom than the top, we will have to endure a little more pain in the coming months,” said the head of research for alternative investments at a large investment firm in London.

Bitcoin was forecast to fall to US$30,000 by the end of this month, US$29,750 by end-September, and rise a touch to US$30,500 by the end of this year, from around US$30,440 currently, according to the survey consensus based on the median responses of 20 analysts.

That compared to predictions made in a similar survey in April of a fall to US$40,000 by the end of June, US$39,000 by end-September, and US$38,500 by the end-2022, from around US$40,500 bitcoin was trading back then.

Forecasts in the latest survey ranged from a low of US$20,000 to a high of US$45,000 for bitcoin by the end of this year, compared to the US$25,000 and US$50,000 range predicted late in April.

In the latest survey, when asked where bitcoin will trade by around this time next year, the median consensus showed it would rise by over 30% from the current price to US$40,000, with the range of forecasts between US$25,000 and US$60,000.

Ethereum to grow by one-third

Ethereum was predicted to weaken to US$1,800 by end-June, US$1,750 by end-September, and recover slightly to US$1,825 by the end-December, from around US$1,810 currently. The range of forecasts was US$1,200 to US$3,000 by the end-2022, compared to the US$1,500 to US$5,000 range predicted in the previous survey.

In the April survey, Ethereum was forecast to fall to US$2,900, US$2,800 by end-September, and US$2,700 by the end-December, from around US$2,990 it was trading back then.

When asked in the latest survey on Ethereum’s value by the end of June next year, the consensus showed it would climb by nearly a third from here to US$2,400.

Wild swings likely

Responses clearly show a wide range of views and point to extreme volatility for the top cryptocurrencies in the year ahead.

In response to the survey’s additional questions, most analysts said the wild swings in crypto markets would continue over the coming year, with the risk to their predictions skewed to the downside.

Recent data show overall flows into listed cryptocurrency funds, which is only a sliver of the market, turned positive in May and continued in the first days of this month.

But only Bitcoin-focussed funds have received inflows, and those on Ethereum and other cryptos still experienced outflows.

Exchange-traded products focused on bitcoin are witnessing a strong investment flow.

Indeed, according to Kraken Intelligence, the assets under the management (AUM) of bitcoin-futures ETFs have increased. ProShares Bitcoin Strategy ETFs, Global X Blockchain & Bitcoin Strategy ETF and VanEck Bitcoin Strategy ETF have risen in the last week of May.

That trend has extended into the first few days of June. Indeed, Norway-based crypto research firm Arcane Research found that global bitcoin ETP holdings climbed to an all-time high of 205,008 BTC this month.

“It’s extremely hard to tell whether the recent tentative flows will last or if the nascent trend will be replicated across the wider crypto market, beyond ETFs,” said a fund manager at a large asset management firm in Europe specialising in digital asset custody solutions for institutional investors.

Low demand

According to CryptoCompare, digital asset investment products tracked by them lost value last month, and the worst-performing Grayscale’s Digital Large Cap Fund product – One of the top bitcoin funds, with over US$19 billion in assets, was down nearly 40%.

Morningstar showed US digital assets funds had lost 46% on average in 2022, with over one-fifth of those losses coming in May.

That shows investors are thinking twice before piling into the market again and indicates low demand for the product.

“Despite the pick-up in May, we expect dispirited inflows to cryptos until macroeconomic and regulatory risks become clearer,” said a chief investment officer of a large US asset management firm in Boston.

In response to an additional question, most analysts said the crypto winter that has crept into June would continue, and these assets will bottom out at the turn of this year or early next year.

“With the Federal Reserve still set on an aggressive policy path, the volatility for risk assets, especially digital assets, is going to be high, and the market could test a few more lows before picking up strongly next year,” said an investment advisor at a large US asset management firm, in New York.