There is something that needs to stabilize when it comes to the future of blockchain, cryptocurrencies and the Metaverse. These are massive technological advances and they are already multi-trillion dollar opportunities. A serious risk is that the financial losses being seen in the financial prices of these assets is hurting the future culmination of these underlying themes. The start of 2022 has been very volatile and the losses could send those who want these advances are harsh enough that it feels worse than when the “Dot-Com Bubble” burst two decades ago.
Bitcoin and other cryptocurrencies did not exist in 2000 when the last digital bubble burst. “Crypto” as a combined group has matured into the “new gold” in the digital age. That is supposed to be some safety against traditional assets, inflation and other uses. This also puts crypto in line with other collectibles for better or worse. Just do not confuse the underlying stocks as collectibles, although they may be competing for the same capital at this point.
Collectors Dashboard wants to evaluate some of the current market trends and consider how the long-term opportunities could be at-risk (or simply leaped over) if these prices continue to slide. And we cannot ignore that non-fungible tokens (NFTs) are all quoted in Ethereum and other crypto prices rather in raw dollars. Guess what that does for those prices — and will the IRS tax gains on NFTs as collectibles or tax them as financial assets?
Bitcoin, Crypto, Metaverse
The so-called HOLDrs maintain that the future is around Bitcoin and other cryptocurrencies, with many predictions that Bitcoin may rise to $100,000 or even much higher over time. Bitcoin peaked at roughly $69,000 in November of 2021, but now the price is back down to about $35,000. At the same time, the high-flying tech stocks that will own the creation of the Metaverse and Web3 have been plummeting in 2022. One driving force for risk-assets (stocks and crypto) is that the years of a zero interest rates are about to see interest rate hikes now that inflation has reached unacceptable levels (more than 6% by the end of 2021).
How do prices begin to stabilize if the risk assets tied to blockchain, cryptocurrencies and the Metaverse are getting crushed. Market forces such as forced sales, investors panicking, stop-loss trades, and forced liquidations from margin calls are all happening so far in January. It’s a vicious cycle when this happens and that is where we are right now at the start of 2022.
Even with cratering crypto prices and lower stock prices, the charge decentralized finance (DeFi) forges ahead at the same time that Web3 and the Metaverse are beginning to become entrenched. The reality is that these are all intertwined and part of the same effort. And again, this represents a multi-trillion opportunity. If only those damned prices would stop hurting everyone who is investing in these assets that are needed.
There are two critical reports which have been issued in recent days that conflict greatly with each other. The investment banking form UBS has warned that a “crypto winter” is likely coming. Goldman Sachs is outlining how Web3 and the Metaverse represent a multi-trillion economic contribution. Is it possible that both reports could be correct when Web3 and the Metaverse have to be so interconnected with blockchain and cryptocurrencies? Then there is a third report worth evaluating by Bitwise Asset Management pointing toward cryptocurrency asset allocations and talk of a $100,000 price target on Bitcoin.
While China and the United Kingdom (and others) are exploring and pursuing their own digital currencies, the Federal Reserve in the United States has also laid out its first views and a public comment period for a U.S. central bank digital currency (CBDC). Is it possible that the Federal Reserve will take down Bitcoin and other cryptos in this process, or will these all exist side by side?
The UBS “Crypto Winter”
Because the prices of risk-based assets like stocks and cryptos are tanking so far in 2022, the UBS “crypto winter” gets the first glance. UBS cites a growing number of factors pointing to a “crypto winter.” One is that the case for Bitcoin as a currency and inflation hedge is dwindling. UBS also cites flaws in Bitcoin’s technology as well. UBS also worries that regulation could stymie the development of the industry. And ultimately, they point to the cratering price of Bitcoin as investors are bracing for the Federal Reserve’s interest rate hikes (expected to be three or more rate hikes in 2022).
As for the case of a “crypto winter,” UBS worries that this is where asset prices continue to fall but fail to recover for a long time. The last crypto winter was in late 2017 and early 2018. The price of Bitcoin had peaked at about $20,000 but the slide down to $4,000 over the next year resulted with investors losing interest in digital assets like Bitcoin.
With the recent price drops that are being seen, many of which are when other markets are closed, the argument that Bitcoin is “better money” is falling short because of very volatile prices and also with its limited supply. And UBS worries that stablecoins and DeFi projects are almost certain to face more regulation as “bigger setbacks from authorities in the coming months.”
Goldman Sachs Multi-Trillion Dollar Metaverse
Goldman Sachs’ Insights cited a United Nations figure that the world’s digital economy represented 15.5% of total GDP in 2018. The firm is forecasting that the digital economy’s share of total GDP rose to 16.8% by 2021, representing approximately $15 trillion. The forecast lays out the bearish and bullish cases and the timing:
In the most bearish case with ~15% of the digital economy shifting towards the virtual world and ~2.5% market expansion from current estimated levels, we arrive at a ~$2.6 trillion total market opportunity and in the most bullish scenario of ~33% of the digital economy shifting to the Metaverse and ~25% market expansion, we arrive at a ~$12.5 trillion opportunity. While the range is quite broad, we acknowledge that we are still 20 years into web 2.0 and expect the timing of web 3.0 will be similar, if not longer.
There is a lot more to the Goldman Sachs Metaverse and Web 3.0 view, and the firm recently in a separate report noted that Bitcoin could overtake gold as an investment.
Bitwise/ETF Crypto Trends by Financial Advisors
The fourth annual survey release of Bitwise/ETF Trends 2022 Benchmark Survey of Financial Advisor Attitudes Toward Crypto Assets is all bullish on Bitcoin and cryptocurrencies. That should be expected considering the nature of the report. The key takeaways are 1) the coming asset allocations that are obviously coming, and 2) loose talk of a $100,000 price target on Bitcoin.
The survey survey of more than 600 financial advisors showed that the number of advisors giving allocations is currently just 15%. An additional 14% of advisors indicated that they will “probably” or “definitely” allocate assets toward crypto in 2022.
The Bitwise survey showed that 53% of the respondents expect that Bitcoin’s price will rise to $100,000 or more within five years. That figure was only 15% of respondents a year earlier.
More in-depth coverage on the Bitwise/ETF Trends report are available.
What About These Falling Asset Prices?
Is this another “Dot-Com Bubble” in the making? Perhaps, but in some aspects may be worse if these prices do not stabilize.
Microsoft Corporation (NASDAQ: MSFT) was the most recent huge announcement about gaming and the Metaverse. It is paying nearly $70 billion in cash to acquire Activision Blizzard, Inc. (NASDAQ: ATVI). While this sounds like it’s about gaming and the expansion around the Xbox and gaming ecosystem, this is ultimately going to rapidly expand Microsoft’s advancements in the Metaverse. Just look at the HoloLens product, think about Microsoft Teams, LinkedIn and the Office ecosystems all being more integrated. Microsoft has a $2.2 trillion market cap, but that is down 15% to about $296 per share since nearly hitting $350 per share in November of 2021.
Facebook isn’t even Facebook anymore now that the company changed its name to Meta Platforms, Inc. (NASDAQ: FB). This had been a $1 trillion company as its shares peaked above $384 late last summer, but the controversies and regulatory woes of the company hurt the stock. Despite Meta’s stock price recovering to $350 by the end of December (2021) its stock was down to about $303 this week.
Walmart Inc. (NYSE: WMT) might not be a technology company you first think of, but having the world’s largest retail operation will require some advancements as the Metaverse takes hold. More recent advancements into launching a cryptocurrency and efforts for the Metaverse didn’t prevent Walmart’s stock from falling. Its stock was at $145 a week earlier, but the stock had slid to about $140 at the most recent close. Despite having sales of more than $550 billion, its market cap is currently about $389 billion.
Coinbase Global, Inc. (NASDAQ: COIN) was the first pure crypto-trading platform to come public. It was valued above $100 billion after peaking above $400 after its initial public offering. With a 13% drop on Friday to about $192 per share, it was barely holding a $50 billion market value. The company has also opined about how it sees itself in the Metaverse.
And what about Bitcoin itself? After peaking close to $69,000 its slide back to $35,000 represented about a 49% correction. That has all contributed to a significant drop in the ProShares Bitcoin Strategy ETF (NYSEArca: BITO). This ETF holds Bitcoin futures rather than owning Bitcoin outright, but its price was down 10.4% in a day to close $24.10 most recently (and Bitcoin’s price is down so far over the weekend. So what if it peaked above $44 per share shortly after its launch? Its market value is now down to under $1 billion.
The technology companies on the NASDAQ lost close to $1 trillion in market value in the month after the March 2000 peak. Things continued to get worse back then for the “New Economy” stocks (sound familiar?), but think about what did not even exist in 2000:
- Search was dominated by Netscape, AOL, Yahoo! and a few others.
- Google was still only taking hold.
- Facebook did not exist (even if The Globe tried).
- Online ads were sold by companies directly.
- The only concepts like Bitcoin and crypto (Digicash and eCash) did not succeed.
- The Metaverse was a concept shown in Sci-Fi movies with bad graphics.
- And back then no single company was ever valued at $1 trillion.
And for collectibles in the year 2000, there were no sales above $1 million for baseball cards and there were no fractional ownership platforms. But hey — at least Tom Brady was about to take his first snap as a quarterback later that year.
Categories: Digital& NFT