Rampant inflation and rising interest rates have led to significant sell-offs across multiple asset classes, but cryptocurrencies have been hit particularly hard. Since last November's peak, the cryptocurrency market has fallen by around 42%, and some analysts are now predicting another cryptocurrency winter - an extended period of squeezed prices.
What does this mean for Investors? The last cryptocurrency winter was brutal - the market saw 88% of its value erased in 2018. But prices have more than rebounded since then, climbing 1.700% in recent years. From this perspective, the current downturn actually looks like a buying opportunity, and Bitcoin and Ethereum should be on every cryptocurrency investor's list. Here because.
1. Bitcoin
On several occasions, Ark Invest CEO Cathie Wood has explained the importance of Bitcoin as the first global, private and decentralized monetary system ever invented. Never before in human history has there been a borderless currency beyond the control of any centralized government or institution. This fact alone makes a compelling investment thesis.
Bitcoin also benefits from scarcity. Its supply is limited to 21 million coins, and if demand continues to grow, this shortage will make it more valuable over time. This would make Bitcoin a powerful inflation hedge because its purchasing power would actually increase over time.
Some investors may disagree with this statement, but the data so far is clear: the consumer price index has risen by about 30% over the past decade, meaning the US dollar is worth less today than it is. was worth 10 years ago. But Bitcoin's value has deflated 99,996% against the dollar, according to Bloomberg, which means it is worth much more.
Investors have good reason to believe that the demand for Bitcoin will continue to grow. The cryptocurrency fever has gone beyond retail traders. According to Fidelity, institutional investors are increasingly interested in digital assets, especially Bitcoin. Apart from this, Bitcoin has also become an important part of the treasury strategy for many companies and governments. In fact, these entities own more than 3% of the Bitcoin in circulation.
Ark Invest thinks these trends will continue over the next few years, and the company believes the resulting demand could push Bitcoin's market cap to $ 28,5 trillion by 2030. At that level, each coin would be worth nearly $ 1,4 million. of dollars, which implies a return of 36 times from its current price of about 38.000 dollars. Sounds pretty good, right? Even if that doesn't happen, Bitcoin is still a popular commodity with a finished offering. These qualities should create wealth for long-term investors.
2 Ethereum
The Bitcoin blockchain is just a digital ledger for transaction data, but the Ethereum blockchain can run self-executing computer programs known as smart contracts. Since its debut in 2015, smart contracts technology has evolved into a thriving ecosystem of decentralized applications (dApps) and decentralized finance services (DeFi).
DeFi is particularly noteworthy because it allows investors to lend, borrow and earn interest without involving banks or other financial institutions. In other words, DeFi makes financial services more efficient by eliminating middlemen. An example: The Compound Protocol currently pays 1,7% annual percentage return (APY) on Tether deposits, a stablecoin pegged to the US dollar. But the average savings account only pays 0,06% APY.
Ethereum has parlayed its status as a smart-contract pioneer into a significant competitive advantage. It currently ranks as the largest DeFi ecosystem by a large margin, with $ 110 billion invested in the blockchain. This figure represents 55% of all DeFi investments on any blockchain. Unfortunately, this popularity has led to significant network congestion, which has sent transaction fees skyrocketing.
As a result, numerous rival blockchains have emerged to challenge Ethereum, although none come close to its scale. More importantly, the developer community has a solution in the works. A scaling solution slated for launch in 2023 could accelerate Ethereum's throughput to 100.000 transactions per second - which is four times more than the Visa network can handle.
With this in mind, Ark believes that Ethereum could steal market share from traditional financial service providers. As the adoption of Ethereum-based software and services increases, the demand for the underlying cryptocurrency is expected to increase, both because it is used to pay transaction fees and because it is the preferred collateral on the platform. To that end, Ark thinks Ethereum's market cap could exceed $ 20 trillion over the next 10 years. This implies a 59x return from its current market cap of $ 332 billion and is why this cryptocurrency is worth owning.
