Unstable political and economic scenario brings down the cryptocurrency market

The crisis that hits the crypto market seems to be far from over. If between 2020 and 2021, there was a moment of euphoria and appreciation, in 2022, the fear of a possible burst of the “crypto bubble” is real. Those who invested in bitcoin (BTC) a year ago are now suffering a loss of almost 66% compared to the initial application. The same goes for those who purchased Ethereum (ETH), which has lost around 62% of its value.

The two cryptocurrencies reached their peak prices on November 12, 2021, reaching US$ 64,400 and US$ 4,644.43, respectively (R$ 344.5 thousand and R$ 24.8 thousand). Today, they are quoted at US$ 20,717.80 and US$ 1,554.62 (R$ 110,800 and R$ 8,314). However, for those who bought BTC in the first three days of 2020, their investment practically tripled. For ETH holders, the application would have increased more than tenfold.

The question that keeps economists and investors awake at night is whether the “crypto winter” will continue (and for how long) or whether the roller coaster that hit prices in the last three years is stabilizing.

The bad macroeconomic scenario due to the war in Ukraine, the impacts of the pandemic and the policy of raising interest rates by the FED (the US central bank) are some of the main factors pointed out for risk aversion by investors.

Amidst the turmoil, the investor migrated his investments from risky assets, such as crypto and tech stocks, to safer ones, such as fixed income. “There was indeed a repricing of these risk assets in a sign that the money went to safer options”, says Rudá Pellini, co-founder and president of Arthur Mining, a bitcoin mining company.

Pellini believes that the crypto market could return to growth in the coming months. “Big companies are announcing the adoption of crypto, as is the case with the personalized Mastercard card with NFT. And this has not yet been priced. In the medium to long term, if the FED stops having large increases, the market may resume.”

Despite recent declines, the cryptocurrency market is growing rapidly in Brazil. According to a report by Anbima (Brazilian Association of Financial and Capital Market Entities), the number of crypto investors in Brazil increased 12.6 times from 2020 to 2021.

With regard to the possession of crypto assets by Brazilians, Anbima found that about 3% of the population, or 6 million people, would have some crypto asset in their name. The value accounts for around R$ 270 billion, which corresponds to 3% of the country’s GDP.

Rafael Melillo, a technology analyst in the banking sector, first bet on crypto in 2019 and again in 2020. And he made losses on almost every application. “I invested in BTC and ETH more out of curiosity, I invested as little as possible. But then it was out of greed, because a friend told me that the Dogecoin coin was going to increase a lot”, he says. It didn’t work out.

He lacked information. “The emphasis on possible gains trumped risk analysis. If someone had presented it to me differently, maybe I would have thought better of it.” Still, Rafael sees himself returning to investing in crypto. “But not in any currency or just following rumours,” he says.