Cryptocurrencies Are in for Another Tough Year

Among the 75 largest cryptocurrencies in the world, only one – the Trust Wallet Token – achieved a positive return in 2022. All the others were depreciating by quite a bit. The average decline was 65.09%. Bitcoin finished with a one-year loss slightly below the average of 63.22%. This is more significant as the number of one cryptocurrency accounts for as much as 38% of the market capitalisation of the entire market.

“Previously, central banks’ monetary policies may have been behind the success of cryptocurrencies. Actions designed to stimulate post-pandemic economies by providing cheap money and record low interest rates may have led to speculative bubbles. We may not see rises in this market in the near term as we are currently in a cycle of ever higher interest rates and monetary tightening”, comments Grzegorz Drozdz, Junior Market Analyst of Conotoxia Ltd.

Could More Cryptocurrency Exchanges Collapse?

The bankruptcy of FTX, the third largest cryptocurrency exchange, also strongly fuelled the crisis in this market. Investors began to fear that a similar fate could befall other platforms.

“To answer the question of which exchanges may be at risk of insolvency, one would need to assess the level of coverage of positions taken. The Coinmarketcap website has implemented such a feature. However, in this case, an absence of transparency could be one of the first clues to warn investors. Exchanges currently characterised by relatively high turnover and a lack of transparency at the same time are ECXX, MEXC, IndoEx, Upbit and BitCoke. Increased liquidity may be linked to investors’ desire to withdraw funds and close positions, which is why these entities in particular should be watched”, points out Conotoxia Ltd.’s analyst.

Cryptocurrencies to Track

The determinant of the condition of cryptocurrencies for the most part remains the quotations of Bitcoin. The largest cryptocurrency with potentially the greatest impact on the digital currency market.

“The average correlation of all currencies against Bitcoin was 0.71. This could indicate a high dependence of this market on the pricing of just this one cryptocurrency. Therefore, with increased volatility, rises or falls on Bitcoin, we could expect similar reactions on the other cryptocurrencies”, explains Grzegorz Drozdz of Conotoxia Ltd.

According to Conotoxia Ltd.’s analyst, at least two other cryptocurrencies also deserve some attention. The first is the Binance Coin, which was issued by Binance, the largest cryptocurrency exchange, and could correlate with its potential success or failure.

“Ethereum is the world’s second cryptocurrency, representing around 18% of the total market capitalisation. The listing of ETH is worth watching as it appears to maintain a high yield at a relatively low cost of mining by miners. It manages to achieve this by moving to a proof-of-stake system, further creating all the infrastructure to enable the introduction of NFTs”, explains Grzegorz Drozdz of Conotoxia Ltd.