It's fair to say that 2022 woke up on the wrong side of the bed for investors in crypto. Most of the market's digital currencies -- including all of its most popular denominations -- experienced double-digit-percentage declines in January. The five largest cryptocurrencies by market cap experienced an average decline of 26%:
- Bitcoin (BTC +0.37%) was down 17%.
- Ethereum (ETH 0.66%) was down 27%.
- Binance Coin (BNB 0.57%) was down 27%.
- Cardano (ADA 2.86%) was down 20%.
- Solana (SOL 1.44%) was down 41%.
January in general was rough for most investors that were long the market. There were few safe havens. Stocks took a hit, as the S&P 500 suffered a 5% slide for the month. Bonds slipped as investors braced for a series of rate hikes that could start as soon as next month. Even that dollar bill you framed years ago lost more value than usual with inflationary pressures mounting. Crypto was still the hardest hit of the four markets. Let's see if it can recover in February.
Image source: Getty Images.
To the swoon
It's probably not a surprise to see Bitcoin hold up better than its crypto peers in a steep market drawdown last month. The same "flight to quality" mindset we have seen over the past year in growth stocks with the most valuable names faring better than their smaller peers played out in the January sell-off. The cryptocurrency that started it all was a laggard to faster-growing denominations during last year's market ascent. It makes sense for it to hold up relatively better during a crypto crash or correction.
Ethereum did something that it has only done one other time since hitting the market in the summer of 2015: It declined in value during the first month of the year. January has usually been a prosperous time to own Ethereum. That certainly wasn't the case this time around. Let's see how Ethereum has historically fared for the month.
- January 2016: up 148%.
- January 2017: up 35%.
- January 2018: up 48%.
- January 2019: down 20%.
- January 2020: up 39%.
- January 2021: up 78.
- January 2022: down 27%.
It's been feast or famine for Ethereum investors in January. We're looking at gains of at least 35% in a single month for five of those seven years, but slides of at least 20% the other two Januarys. If it's any consolation, the last time Ethereum got off to a bad start in January it wound up climbing 21% through the final 11 months of 2019.
Binance Coin burst onto the scene in 2021. It began the year as the ninth-most valuable crypto, only to emerge as the bronze medalist by the end of the year. The utility token for the globally popular Binance exchange couldn't escape the market malaise, plunging with the rest of the digital currencies.
Cardano overtook Solana in market cap last month, but the relative victory is hollow in light of its 20% drop in January. Cardano and Solana have emerged as popular crypto investments, as recent updates make them even more efficient in tackling transactions. They have both trounced Bitcoin and Ethereum in total return over the past year. Solana's the big winner with a 23-fold surge over the past year, but it also fared the worst of the five largest denominations by plummeting 41% last month.
February should be better, and not just because it will be hard not to beat January's grim performance. Exciting crypto investors to come back to the market will be the real challenge, since digital currencies failed to nail the elevator pitch to buy into digital currencies in the first place. Crypto is hailed as a hedge against the stock market, but we didn't see cryptocurrencies start to rally until the stock market itself started to do the same late last week. Crypto as a cure for inflation also didn't hold up well as a battle cry. Cold, hard cash in your safe may have declined by a fraction of a penny per dollar in January given the accelerating inflation rate, but a 17% to 41% hit in the five leading types of cryptocurrencies isn't much of a consolation prize. Momentum is back, so February is already off to a better start than where the crypto market was last month. Keeping that momentum building is the real challenge.
