If you're like most people, you've already given up on any New Year's resolutions you made for 2022. And that's OK. You're only human, and there's nothing that says you can't recommit to a resolution in February. Or not. If you don't really want to commit to a particular change of habit, there are better ways to spend your time than beating yourself up for it.
But if one of your resolutions for this year was buying more -- or simply getting into -- cryptocurrencies, that's one goal worthy of commitment. Here's why.
A day of reckoning is upon us
It's an idea that may surprise some, as most cryptocurrencies have been absolutely routed lately. Ethereum (ETH 4.70%) has lost almost half of its peak price hit in November, while Cardano (ADA 7.68%) is now valued a third of what it was back in September. Meanwhile, Bitcoin (BTC -0.80%) is down nearly 30% for just the past month and Dogecoin (DOGE 1.66%) isn't far behind. Nearly every crypto asset, in fact, has been caught up in a sweeping sell-off that some might describe as an overdue day of reckoning for the very idea. As GMO co-founder and well-known investment analyst Jeremy Grantham recently put it:
Cryptocurrencies leave me increasingly feeling like the boy watching the naked emperor passing in procession. So many significant people and institutions are admiring his incredible coat, which is so technically complicated and superior that normal people simply can't comprehend it and must take it on trust. I would not.
Euro Pacific Capital CEO Peter Schiff tweeted a shorter, similar sentiment just a few days ago: "in the long-term Bitcoin's price will be zero."
There's no veiled message to figure out here. What's different now is that at least a small crowd of people are starting to listen to the warnings, even if they don't overwhelmingly believe them yet.
So if this is what awaits, then why, pray tell, would anyone want to step into any cryptocurrency this year (or any other year, for that matter)? Because the rapid rise and fall of cryptos over the course of the past several weeks was a necessary evil that cleaned the slate for a more sustainable future.
Been there, done that
How did something so beloved by so many turn sour so fast?
We've actually seen this sort of mania go bust before. Think back to the 3D-printing mania of 2013, or the gold rush of 2011, or the solar power frenzy of 2007. Residential real estate was all the rage in 2006 and 2007, followed by 2008's incredible rally of crude oil prices. Investors couldn't buy enough tech stocks back in 1999, and were similarly gaga over Chinese stocks in 2013 and 2014.
There's an obvious common thread among these fads. That is, in retrospect, investors plowed into each mania without asking enough of the right questions -- questions like, is there any actual profit to be made, and if so, how and when will those earnings materialize? As turns out, it was going to take longer for those investments to justify their lofty prices than most investors initially seemed to expect. That's why each of those price rallies eventually imploded.
In simpler terms, investors were ready for these stocks, but the companies behind these stocks weren't quite fully ready for their respective markets.
There's another, less obvious thread for these manias, though: Every one of those fads has paid off in the meantime. Solar power is now mainstream. China's more investable than ever. Technology has been the single best-performing sector of the century. It just took a drubbing to deflate the euphoria that was driving too many investors to pay too steep of a price for these tickers too soon. It also took more time for investors to get a firm grip on the actual nature of the opportunity.
The recent meltdown of most of the major cryptocurrencies is a much-needed reality check for investors who were buying cryptos hand over fist without even understanding why they wanted them so badly (other than the fear of missing out). Many traders have already started to ask themselves how a non-cash-producing asset that has no basis for their market-determined value is supposed to be priced at all. In a similar vein, crypto investors are starting to ask themselves how any instrument as volatile as Bitcoin or Dogecoin will ever actually serve as an alternative blockchain-based currency, when currency -- by design -- is supposed to be stable.
Ask the right questions
None of this is to suggest 2022 will be a less volatile year for cryptocurrencies than 2021 was, nor is it to say that they'll log gains as a group. There are still plenty of kinks to work out.
It is to say, however, that the majority of the trading crowd is likely to start thinking about the more practical, sustainable uses of cryptocurrencies, and how that should affect any cryptocurrency's valuation. Look for the recent sell-off to mark the beginning of a tamer, more predictable, and more investable crypto market.