This will take time however, as the industry puts lessons about systemic deficiencies in the right context and applies the necessary risk controls to protect its customers. For instance, we expect greater calls for regulatory clarity to emerge, as institutional investors push for better governance and standards to help make the asset class more accessible, safer, and easier for all to navigate. The differences between these periods may also be observed in the prospective fallout from the latest crypto downturn. This is a significant deviation from the trend observed in the last crypto winter, when digital assets underperformed nearly all traditional risk assets for the duration of 2019 and into early 2020. Prior to the fallout in November, an equally-weighted basket of BTC and ETH offered a negative Sharpe ratio of 1.08 compared to an average negative return of 0.90 for US stocks. Comparatively, the Nasdaq is down 30% since the end of 2021 and the S&P 500 down 18%.įrom a Sharpe ratio perspective however, crypto’s risk-adjusted return actually performed in line with US and global stock indices through 2022 and did much better than US bonds. The total market capitalization of cryptocurrencies is currently around US$835 billion, down 62% from $2.2 trillion at the end of 2021, albeit still high relative to most of the asset class’ history. Rather than stepping back, they are using this environment to hone their knowledge and build the infrastructure to prepare for the future.īut no one is arguing that digital assets haven’t faced an important setback. Many investors take a long-term perspective and recognize the cyclical nature of these markets.

For one, institutional crypto adoption remains firmly entrenched.

Yet, despite the uncertainty surrounding the potential fallout, there are important characteristics that distinguish this market from the previous crypto winter. The dramatic events of 2022 will shape the crypto landscape for years to come.

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