While 2021 was considered the golden year for crypto, 2022 wasn’t as kind. Major cryptocurrencies lost over 50% of their value throughout this year during the bear market. Now, it’s hard to imagine that at this time in 2021, Bitcoin was soaring above $60K. Still, the ongoing crypto winter was not unforeseeable, rather, projected.
The crippling financial impact of the pandemic and the Russia-Ukraine war meant that liquidation would be high. To cope with the unprecedented increase in the cost of living, it was evident that traders would quickly drop their most risky assets. In addition, the tightening monetary supply amid rising interest rates meant that volatile assets like crypto would be devalued. Consequently, these forecasts were precisely on point, and as a result, we are seeing this continual bear market.
What’s the silver lining in this? We must understand that crypto isn’t the only economic tool that’s crashing. From liquid currency to stock and shares, every aspect of financial transactions has been affected by the ongoing crisis. But believe it or not, crypto and other DeFi assets like NFTs have exhibited significantly better resilience than other centralized assets during this period.
So, given that we are still in a bear market and about to enter a more severe period of recession, is it a good time to enter the crypto and NFT scene? Let’s see what the statistical trends suggest.
Crypto Shows More Resilience than Stocks
Historically, crypto assets are known for their volatile reputation, while major stocks such as S&P 500 and NASDAQ are considered more stable and low-risk investment options. While this is true on paper, there are fine lines in stock price trends that suggest that tier-1 cryptocurrencies have shown more stability than traditional stocks during this recession.
The Federal Reserve has announced plans to increase the interest rates by another 1.25%, bringing the total federal funds interest rate to 4.25-4.5% by the end of 2022. Higher borrowing costs mean stocks and treasury assets will also decline in the short term. However, given that the treasury already paid 2% raises in advance, the long-term yield from treasuries could be better than stocks, as more matured assets can be reinvested into new treasuries.
But how do crypto assets fit into this scenario? While major tokens like Bitcoin and Ethereum have lost more than half of their value in the past year, they seem to have established a rather stable resistance level in recent months. If we see Bitcoin’s two-month price chart, the token has remained rather stable around the $19k-$20k price mark; similarly, Ethereum’s value has hovered between $1200-$1300 in the past three months.
These price trends indicate that tier-1 cryptocurrencies have already sustained mass liquidation. The prices are now projected to maintain a certain resistance level, as most assets are no longer concentrated among short-term holders, which means that Bitcoin and other major crypto assets could function like treasuries.
In fact, Bitcoin’s short-term holder cost basis has fallen below its long-term holder cost basis, meaning that most short-term holders are underwater. If the overall BTC supply remains highly concentrated on long-term holders, we might see prices pick up again slowly but surely, as liquidation risks tend to be low for long-term holders.
If we compare BTC and ETH price drops to NASDAQ and S&P500, we can see how these crypto assets have remained less volatile than the stock market in recent months. The VIX index currently sits at 31.10%, which measures the volatility of the US Stock market. On the other hand, Bitcoin’s volatility index is currently sitting at 19.65%, while Ethereum and Solana’s volatility indexes remain at 4.35% and 4.27%, respectively, showing significantly more stability than the stock market.
NFTs: One of the Strongest Assets in the Falling Economy?
If we talk about stability, surprisingly, NFTs have produced one of the most stable yields and returns in the bear market. On-chain metrics show that the number of unique traders in the NFTs space has increased by 36% in the third quarter of 2022 compared to last year. In September, non-fungible token sales recorded $947 million, which is a generous increase from the past two months. Around 8.78 million NFTs were transacted in September, which is an advance of three million since July.
These numbers are significant because non-fungible token sales and transactions continuously increase while the overall market economy is declining. This shows that NFTs adoption is getting stronger and stronger every day. In fact, nearly 23% of US millennials hold non-fungible assets.
This consistent adoption is being driven by NFT's utility. Such assets are no longer just digital collectibles; a lot of them hold tangible real-world values as a result of partnerships with real brands and facilities.
Moreover, major brands and establishments are launching their own non-fungible tokens for more interactive and reward-based digital interactions. The world’s largest ETF issuer, BlackRock, is reportedly launching a Metaverse ETF and rolling out NFTs collections. Mastercard has allowed its cardholders to buy NFTs on several marketplaces and is issuing the world’s first NFTs customizable card in partnership with hi. This growing adoption, utility and real-world integration point to the fact that non-fungible tokens are, in fact, one of the most sustainable asset classes in the digital space right now, which continues to perform well through the recession.
In conclusion, crypto and NFTs have been more stable than centralized asset markets in recent months. This indicates that blockchain and DeFi assets might show more sustainability in the coming recession, which makes them a strong contender for bear market investment decisions.
Chris Stuart Oldfield, Chief Strategy Officer (CSO) at Fit Burn