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Five factors creating unprecedented opportunities in the crypto markets


In down markets it can be difficult to maintain a long-term investment strategy. This has been particularly true for many investors new to the crypto space, unfamiliar with the significant price swings inherent to an emerging industry like crypto. However, our experience in these markets has taught us that focusing on long-term fundamentals—and not on short-term price swings—can provide incredible opportunities for those with extended investment horizons.  


We believe the current environment is presenting historic opportunities for crypto investors even as prices remain far off all-time highs. Bitcoin, for example, is close to 70% off its all-time high. But this type of price decrease can also provide opportunity. We conducted a recent analysis to look at what happened to bitcoin’s price one year after each day it spent in the 70% drawdown zone. We found that 92% of the time its price was higher, and 30% of the time bitcoin had generated more than a 100% return over that one-year time period. Moreover, investors in bitcoin with a horizon of at least three years have always been rewarded for their patience, and bitcoin has outperformed the S&P 500 over every time horizon longer than two years[1].


More broadly, when considering current blockchain fundamental metrics, crypto is cheap when compared to previous “crypto winters.” It has a stronger developers’ ecosystem, more venture capital investments, and higher total value locked (TVL) numbers. We believe investors who bought crypto assets close to all-time highs should be patient and may want to consider current prices an attractive buying opportunity. For those who have not entered yet, our analysis points to this potentially being an excellent opportunity to get exposure.


For investors with a long-term strategy, there are several specific factors to consider that may prove to be catalysts for the next bull market. Here, we share our views on the factors we believe are creating a great strategic entry point into crypto for investors.   


  1. This drawdown is mainly macro-driven.


High inflation, tightening monetary policies, and geopolitical tensions have created a risk-off environment for asset classes like equities and crypto. New technologies (e.g., tech stocks and crypto assets) are particularly affected by this type of environment as long-duration assets. As interest rates rise, the discount factor of future value (or cash flow) also increases. The Nasdaq Crypto Index is down about 50% year to date, but some tech stocks are also taking similarly large losses, including Netflix (-62%), Paypal (-51%), and Meta (-51%)[2]. 


However, when the Federal Reserve and other central banks stop the monetary tightening cycle, possibly within the next year, we believe crypto has the potential to be one of the first asset classes to recover. Regardless, we believe that despite the high correlation between crypto assets and traditional risk assets, the current macroeconomic environment has little impact on the long-term prospects of blockchain technology and crypto assets. 


  1. The Merge and other recent advancements (e.g., zkEVMs) are big leaps for crypto.


The next two years are going to provide critical infrastructure developments across the crypto ecosystem. But in the near term, developments like The Merge and zk-Rollups are going to be instrumental in strengthening crypto’s long-term investment case.  


In May, we wrote an in-depth analysis of Ethereum’s merge, discussing the many technological and economic upgrades Ethereum will go through when its consensus layer finally transitions from Proof-of-Work (PoW) to Proof-of-Stake (PoS). This migration will cause a huge reduction in Ethereum’s power consumption (~99.95%), establish the infrastructure for the future implementation of sharding, and will update the network’s monetary policy, with a potential decrease of ~90% of the current issuance velocity of new ether (ETH). 


We believe Ethereum’s merge is a significant event for investors, likely driving a huge decrease in the liquid supply of ETH and potentially leading to significant price appreciation. While it’s unclear if The Merge alone will change anything in terms of adoption, scaling solutions like zk-Rollups will most certainly help with Ethereum’s adoption. Developments such as scaling solutions like zkEVMs, will help to create new value for Ethereum as it seeks to maintain its position as the world’s leading smart contract platform. zkEVMs will allow Ethereum to become very scalable without giving up the benefits of security and decentralization—potentially solving the “Blockchain Trilemma.” 


Additionally, the next Bitcoin “halving” is set to take place in mid-2024. A halving (or halvening) is the event that cuts in half the number of bitcoins created for each new block that is included on Bitcoin’s blockchain. Bitcoin is a disinflationary asset, meaning it has a positive supply inflation ratio but its rate of inflation slowly decreases over time[3]. The 2024 halving will be another key step in the direction of Bitcoin reaching its supply limitation. Bitcoin halving dates have typically led to volatility in the crypto market, but each new halvening is different as the ecosystem becomes more mature[4].


  1. DeFi has proven to be robust. 


This liquidity crisis has pressed prices down even further and proved the robustness of DeFi. DeFi protocols have remained resilient and maintained strong fundamentals throughout this crisis. In July, the CF DeFi Composite Index rose significantly, up 67.6% for the month[5]. 


Beyond this short-term performance, it’s worth highlighting how some “Blue-Chip” DeFi protocols have continued to operate superbly well during these very challenging times. DeFi protocols are usually cash-generating entities, which is different from other types of crypto assets and may help explain their performance. Uniswap, a leading decentralized exchange, is one notable example of this resilient  performance. The exchange has continued delivering an independent, decentralized, 24/7, permissionless, and immutable solution that supports thousands of digital assets and stablecoins across the Ethereum ecosystem. In fact, Uniswap’s trading volumes have been on par with Coinbase in recent months, as shown in the chart below.


  1. Institutional interest remains.


Most big banks and financial institutions have projects in place to integrate crypto / tokenization. There is no evidence to suggest these plans are being scrapped because of current market conditions and the institutional investors allocation trend continues. For example, about 6.5% of all bitcoins are held by public and private companies, sovereign governments, and ETFs[6]. And the interest in crypto goes beyond just bitcoin. DeFi protocols in particular have received significant interest from traditional financial institutions, including French investment bank giant Société Générale, which has applied for a $20 million MakerDAO loan, and JPMorgan, which has indicated its interest in tokenizing US Treasuries and money market funds


We also believe that Coinbase’s recent announcement that it is partnering with BlackRock, the world’s largest asset manager, is a very significant development for crypto adoption. Institutional investors with accounts on both Coinbase Prime and BlackRock's Aladdin will gain access to direct crypto asset exposure. This partnership is an excellent example of the institutional commitment to the crypto space not waning in light of recent short-term market conditions or crypto price action. 


One additional factor we believe will help with institutional adoption is The Merge. As Ethereum moves from PoW to PoS, the overhang of ESG concerns with crypto will be removed for Ethereum, eliminating a key barrier to adoption for institutional investors in particular. 

Source: A Take On “The Merge” - Hashdex  (Date: 08/09/2022)


  1. The global regulatory outlook is more positive than in the past.  


Policymakers are taking crypto more seriously than at other time in the past. It’s important to remember that just a few years ago, many investors were concerned about the US or other developed countries banning crypto. Today, most mature economies are trying to figure out how to integrate crypto, understanding that it is here to stay. While some of this attention is skepticism or concern over fraudulent activities, the global regulatory outlook for crypto has never been more positive. 


Legislative efforts in the US, Brazil, and EU may help facilitate institutional inflows as more regulatory clarity emerges. And President Biden’s Executive Order takes a balanced perspective to crypto regulation that we are optimistic will preserve the innovative explosion taking place within the crypto ecosystem. These are signs that the educational efforts driven by the crypto industry are working and that the coalition of pro-crypto voices has grown large, diverse, and influential. 


Looking ahead


Despite the drawdown experienced in the crypto markets this year, we continue to believe that crypto assets make a unique component for portfolios and that the industry has a very promising long-term outlook. As use cases continue to scale this outlook will only grow stronger.  


We also believe that down markets can provide excellent opportunities for investors to enter this space. The five specific factors discussed here are creating an entry point that is unprecedented when compared to previous periods in the crypto markets. Regardless, crypto investors should maintain a long-term mindset and be less concerned about short-term price movements. Ultimately, this is an asset class with the potential to disrupt every corner of the economy. For those investors with long-term horizons we believe their patience will be rewarded as crypto continues to prove its worth over time. 


[1] Bitcoin is telling us what the S&P will do. The Bitcoin Layer, August 5, 2022.

[2] Nasdaq data as of August 5, 2022.

[3] The terms “inflation” and “deflation” are used in relation to bitcoin’s supply, not its price. Because bitcoin has a growing supply that slows over time, it is considered “disinflationary.”

[4] See https://www.gemini.com/cryptopedia/bitcoin-halving-history-crypto-halving-dates-btc-halving.

[5] See https://www.cfbenchmarks.com/data/indices/CFDFMWLDN_RR_TR.

[6] How are institutions and companies investing in crypto? CoinDesk, June 2022.




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