One year later, big Bitcoin expectations are far off

A year ago, crypto experts were riding high on the success of 2021, and some predicted that Bitcoin would reach $100,000 or more in 2022.

That’s a long way from where the coin will really end this year: $16,500.

Bitcoin lost more than 60% in 2022, its second-worst annual performance on record, and just its third down year ever, driven down by an uber-hawkish Federal Reserve and a spate of scandals and implosions of the crypto space’s once-vaunted enterprises.

Other cryptocurrencies suffered as well, with Ether losing about 70% and an index of the top 100 coins losing around 65%.

“People did not understand how much of an ‘easy money’ asset class cryptocurrencies were in 2020 and 2021,” said Matt Maley, chief market strategist for Miller Tabak + Co.

“Some cryptos will survive and even thrive in the future, but they moved way too far, way too fast after the Fed engaged in their zero interest rate and massive QE policies. Now that these programs have disappeared, it’s going to take a lot longer for the crypto asset class to reach its full potential.”

At the end of 2021, Fundstrat’s Tom Lee stated that the currency could easily hit $100,000 in 2022 and that the $200,000 range was attainable. “I know it sounds fantastical, but it’s very useful,” he said to a reporter.

Meanwhile, Goldman Sachs strategists forecast in early January that Bitcoin might reach $100,000 in five years if it absorbed market share from gold.

Mike Novogratz, a crypto supporter, had predicted that the token would reach $500,000 in the same time frame, a prediction he later withdrew at the beginning of December.

The $100,000-plus price projections demonstrated “how much most of us are still influenced by recency bias,” said to Noelle Acheson, author of the “Crypto Is Macro Now” newsletter.

But maybe none has been more audacious than Cathie Wood of ARK Investment Management, who restated her Bitcoin aim of $1 million by 2030 — an approximately 6,000% gain from current prices — at the end of November.

“Sometimes you need to go through crises to see the survivors,” Wood told Bloomberg TV at the time. “We think Bitcoin is coming out of this smelling like a rose.”

At the outset of the year, many strategists misjudged the Fed’s willingness to be proactive in raising interest rates in order to control inflation.

Other central banks across the world boosted rates as well, creating an unfavourable climate for risky assets like cryptocurrency – a significant shift from the heady days of 2020 and 2021, when rates were extremely low.

Coinbase Global Inc. and Marathon Digital Holdings Inc. both lost about 90% of its value in 2022, while Riot Blockchain Inc. lost 85% and MicroStrategy Inc. lost 74%.

“2020-2021 was a zero-interest rate policy party, rewarding the most suave party attendants for extreme risk-taking,” Vetle Lunde, senior analyst at Arcane, wrote in a research report.

He said that “fortune did not favour the brave, and we entered a consistent doom cycle of default, fraud, and contagion.”

From the implosion of the Terra blockchain, which took down a number of crypto lenders, to the bankruptcy of FTX, the year dealt the sector hit after blow.

Lunde notes that his firm’s “Liquid Tradeable BTC” proxy has declined to June 2020 lows, as have exchange balances, which has ramifications for Bitcoin liquidity.

He anticipates the market to settle down in 2023, but does not expect prices to return to previous all-time highs during the year – though Bitcoin may end the year higher than it began.

“In 2022, the naked swimmers were exposed, and bad apples got eliminated,” he said. “Over the last year, we have relearned an old Bitcoin slogan – trust no one.”