The crypto bull market is already upon us, as stated by Jennifer Murphy from Runa Digital Assets. Bull markets usually begin from the lows of the bear market when risks are prominent, and sentiment is poor. In 2022, the crypto market faced one of the worst market environments ever. Bitcoin experienced a 64% drop, while numerous other tokens fell by 80 to 90%. Crypto firms such as FTX and Celsius went bankrupt, and regulators made it clear that they would hold the industry accountable. Despite this gloomy backdrop, January 2023 turned out to be one of the best months for crypto, with Bitcoin up by 40% and Ethereum up by 33%. Seven of the top 100 tokens saw an increase of over 100%.
Changing Risks in the Crypto Market
Today, risks have changed significantly. The Federal Reserve’s interest rate increases are much closer to an end than a beginning. Although rate cuts may still be 9-12 months away, the market often anticipates the Federal Reserve’s actions months before they happen. The SEC continues its prosecution of crypto, but the U.S. courts have handed the industry some major wins in the Ripple and Grayscale cases. At the margin, macro and regulatory risks are still significant but declining.
The Skepticism Phase of the Crypto Bull Market
It seems that we are entering the “skepticism” phase of this crypto bull market. Despite the fast start in 2023, the Crypto Fear and Greed Index showed “Neutral” as of Wednesday. Spot trading on centralized crypto exchanges fell to $475 billion in August, the lowest in three years. While Bitcoin has increased by 66% YTD, at $27,525, it is trading 60% below its all-time high of $69,045.
Major Companies Announcing Crypto Initiatives
Major companies continue to announce crypto initiatives. Google is actively investing in blockchain and Web3 capabilities. Paypal recently announced it would be the first major U.S. financial institution to launch its own stablecoin. And Blackrock, the world’s largest asset manager and one of the most admired global brands, has filed for a spot Bitcoin ETF.
Investment Thesis and Strategy
If you have an investment thesis you like, go with it. Make sure you’re not looking at this as a gamble and determine your appropriate allocation, risk, etc. Whether you’re playing a short-term trade or a long-term hold, have a plan. An approval for a spot BTC ETF would likely send the price of BTC and ETH much higher. At that point, determine if you want to re-allocate or hold your crypto for a longer period.
Helping Clients in the Crypto Bull Market
To ensure your clients don’t get burned in the next bull run, let them know you understand and can help with an allocation to crypto. Conduct due diligence and have a strategy for those who want to allocate to crypto. Choose the on-ramp, custodian, and services you’ll offer. Then, have conversations with your clients about their investment theses, risk profiles, and allocations. If your clients understand their investment thesis, how crypto fits into their portfolios, and how to keep it safe, they’re less likely to get burned.
In conclusion, the crypto bull market is here, and risks have changed significantly. As we enter the skepticism phase, it’s essential for investors and financial advisors to have a plan, conduct due diligence, and understand the risks involved. By staying informed and making educated decisions, investors can potentially capitalize on the opportunities presented in this crypto bull market.
