Prices for cryptocurrencies have largely dropped in 2022 in volatile price action. While big intraday swings and price action are dramatic, institutional investors aren’t deterred by its overall growth prospects, said experts. Bitcoin “doesn’t seem to be scaring off the institutions. In fact, they’re capitalizing off of it,” said one crypto expert. Sign up here for our daily newsletter, 10 Things Before the Opening Bell. Bitcoin and the broader cryptocurrency market’s wild ride at the start of 2022 is unlikely to deter institutional investors from trying to capture a piece of the overall growth of digital assets, according to two cryptocurrency experts.
Bitcoin has tumbled 20% so far this year, trading around $36,900 on Friday. The move builds on its 19% slump in December. Ether, the biggest so-called altcoin, has suffered a 33% loss this year, trading around $2,470 as this week wound down. The cryptocurrency market as a whole marked a 24% decline during Friday’s session, to a valuation of about $1.67 trillion, according to CoinMarketCap.
Stocks have also been subjected to sharp losses this year as investors reprice assets to prepare for the Federal Reserve to raise interest rates at least four times this year to tame hot inflation. The S&P 500 index has touched correction territory and the Nasdaq-100 index, which hosts mega-cap tech stocks, is in a correction, or a drop of 10% or more from a recent high.
“Pretty much everything is down to start off this year. Bitcoin has more volatility and crypto, in general, has more volatility, because those are the kind of coins that will go up 100% in a year and you don’t see the S&P or the Dow Jones [Industrial Average] do that. So it’s important to keep it relative,” said Chris Kline, COO and co-founder of Bitcoin IRA, whose app allows users to invest in crypto with retirement accounts.
For crypto investors, “there’s no secret to the swings that this product can take,” he told Insider this week.
While they have been selling off in recent months, crypto saw big gains overall last year. Bitcoin, the most-traded cryptocurrency, surged 60% in 2021. And ether, the token of the ethereum blockchain, logged a stunning 400% jump.
Kline said much of the gains were driven by large institutions and companies, such as investment bank Goldman Sachs, implementing or expanding bitcoin as part of their business and investment strategies.
Bitcoin, which was first minted in 2009, is in its “adolescent stages” and volatility tends to be high in the early years of an asset class, said Kline.
It “doesn’t seem to be scaring off the institutions. In fact, they’re capitalizing off of it. El Salvador last week bought [more] bitcoin. MicroStrategy bought more and new players are positioning in this space,” he said.
El Salvador, the first country to make bitcoin legal tender, bought 410 bitcoin “for only 15 million dollars,” as the price slumped, the country’s president, Nayib Bukele, said last week. El Salvador holds more than 1,500 bitcoins, according to CoinDesk, and the country plans to issue a $1 billion, 10-year bitcoin bond this year.
Enterprise analytics software maker MicroStrategy also took advantage of bitcoin’s price slump in December and bought $94 million worth of the digital coin. CEO Michael Saylor told Bloomberg last week he has no plans to change its bitcoin acquisition plan despite the cryptocurrency’s price slide.
MicroStrategy in 2020 became the first publicly traded company in the US to buy and hold bitcoin as part of its balance sheet. It has since accumulated about 124,391 bitcoins recently worth about $5 billion, according to Bitcoin Treasuries.
Meanwhile, financial firms are suggesting investors gain exposure to digital assets, said Eric Chen, CEO and co-founder of Injective Labs, a decentralized exchange incubated by crypto exchange Binance and backed by billionaire investor Mark Cuban.
“Industry letters are being sent out amongst larger investment vehicles and institutions that are still recommending adding cryptocurrencies or digital assets into the portfolio, even though it might be a single-digit percentage for diversification or something lower than that,” he said. “I think the price volatility, or the general broad market sell-off, hasn’t affected institutional interest as of today.”
And Kline at Bitcoin IRA said investing in cryptocurrencies is still about the fundamentals.
“We’re seeing infinite money supply and we’re seeing the finite supply. One’s really volatile. The other one will have consequences to that growth over time and we’re already seeing it with inflation over 7% into Q4” he said, referring to the US consumer price inflation report for December.