When will crypto prices recover?

But when things are at their lowest, the only place left for them to go is up. Does this apply to cryptocurrencies? Are we due for a turnaround—and could now be an opportunity to buy before the crypto market rebounds? Read on to find out what’s causing the crypto bear market, what investors can do to prepare for an upswing, and where to buy crypto if you’re considering a purchase.

What’s causing crypto prices to fall?

A combination of macroeconomic headwinds has been buffeting both crypto and equity markets. Between the war in Ukraine, red-hot inflation, large interest-rate spikes and slower job growth, there has been a spate of macro news fuelling uncertainty and triggering wave after wave of sell-offs.

“The ongoing weakness in the crypto market is due to the [U.S.] Federal Reserve’s aggressive stance and continued rate hikes, which is withdrawing liquidity from the market,” says Marcus Sotiriou, analyst at GlobalBlock, a publicly listed digital asset broker. He adds that markets view crypto as a high-risk asset, “and these assets get sold off when financial conditions tighten.”

It doesn’t help that the crypto market has been closely following equity markets for some time. Previously, the two were mostly uncorrelated, and for many investors that divergence was part of cryptocurrency’s appeal.

“The crypto market’s correlation with the stock markets has risen significantly this year, as the economy has entered a new interest-rate environment,” says Dan Ashmore, an analyst at the trade news site CoinJournal.

When will crypto’s price volatility ebb?

The wider market downtrend could end when the Fed eventually pauses its rate hikes or initiates rate cuts, Sotiriou says. “The former is more likely, which is when the Fed will no longer be carrying out aggressive monetary policy,” he notes.

While it’s difficult to predict when this could occur, as it depends on the health of economic data over the coming months, Sotiriou reckons the “middle of next year is a reasonable time for us to reach peak rates for the Fed,” which is when macroeconomic uncertainty, especially with regards to inflation, may subside. Ashmore says that for the volatility to subside, inflation must be brought under control and the energy markets—which continue to be impacted by the war in Ukraine—must settle down. “I’d be hesitant to put a timeframe on this as it’s simply too hard to know, but I expect more [short-term] pain ahead as we move into winter,” he says.

Sotiriou feels some market improvement may be around the corner despite the macroeconomic turmoil “because crypto has absorbed negative news in recent weeks without capitulating further, suggesting short-term strength.”

The recent indication that the Fed may soon slow down rate hikes provides reason for optimism. “As the Federal Reserve’s rate hikes and aggressive stance is the main concern for investors, their recent statement can provide some comfort,” Sotiriou says.

When will crypto prices go back up?

No one can say for sure, but a larger crypto bounce may be on the horizon, due to the factors stated above.

Instead of trying to time the market, investors could use this opportunity to load up on quality assets on the cheap. “For multi-year investors, it could be a time to allocate to crypto assets, provided they can weather short-term volatility,” Ashmore says.

Another way investors can prepare for the upswing is to use dollar-cost averaging to buy established assets that are “likely to weather this storm [or one] that is potentially on the horizon,” says Sotiriou.

Dollar-cost averaging is the practice of investing small amounts periodically, a tactic that spreads out risk while reducing average cost per unit.

Crypto prices for 2023 and beyond

In the short term, there could be some relief in the stock and crypto markets due to improvement in the macro picture, before the choppiness continues for some time, says Sotiriou. His outlook is brighter for the longer term.

“In the coming years, we can expect the crypto ecosystem to expand tremendously, particularly as macroeconomic headwinds subside and more regulatory clarity arrives,” he says.

Ashmore is less certain about the short term and only cautiously optimistic about the longer term. “In the short-term, all bets are off,” he says. “Winter is here, and the world is squarely in the midst of an energy crisis, while inflation is rampant and there is also the small matter of a war in Europe.”

Short-term crypto purchases in this climate amount to little more than a gamble, and in the long term, only blue-chip coins like bitcoin and ethereum are likely to recover, he says. “Many coins will never sniff the all-time highs they printed during the pandemic. The key for investors is choosing assets with genuine utility and a roadmap, and keeping their time horizon and risk tolerance squarely in mind.”

What impact will crypto regulation have?

Let’s not shy away from the elephant in the room: crypto regulation. The good news, contrary to popular belief, is that increased regulation could accelerate the crypto rebound.

Regulation is inevitable, and while some view this as a negative thing, it should help bring crypto into the mainstream, contends Ashmore. Everything else in the financial sector is regulated, so “it is more a question of ‘how’ rather than ‘if.’”

There’s another silver lining to increased regulation—it could give more confidence to organizations that have been waiting on the sidelines. “There has been a lack of regulatory clarity, particularly in the U.S. and Canada, surrounding the whole crypto ecosystem,” says Sotiriou.

Many institutional investors are waiting for more regulatory clarity before they buy. If they eventually do, this could push the prices of cryptocurrencies higher.

Meanwhile, we’re seeing signs of growing acceptance: Crypto is routinely covered in mainstream media. Bitcoin is now on the balance sheets of many public companies, ranging from Tesla and JP Morgan to Visa and Google. Even a conservative group such as the Ontario Teachers’ Pension Plan has made a substantial investment in crypto. Further, a staggering 94% of state and government pension plan sponsors in the U.S. now invest in cryptocurrencies, per the 2022 CFA Institute Investor Trust Study.

“History has proven that over time, technology is accepted if it works,” says Ashmore. “It might just take time.”

Which crypto coins are likely to survive in the long run?

There is no crypto crystal ball, but some experts suggest quality coins that have tangible utility and underpin several projects will prevail—not the unproven, piggyback coins of questionable provenance. (Read more about factors that may influence a cryptocurrency’s longevity.)

Where to buy crypto in Canada

You can purchase crypto coins on CoinSmart (ticker symbol SMRT), a fully regulated Canadian crypto platform. It offers an easy-to-use interface, a transparent fee structure and 24/7 customer support. The platform’s security features include offline cold storage and two-factor authentication. Sign up for an account* with the code money30 and receive CAD$30 in bitcoin when you deposit a minimum of CAD$100. 

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Read more about crypto:

• What the ETH? MoneySense’s guide to ethereum and other altcoins
• Investing in stablecoins in Canada
• Solana vs. Avalanche: Which is the best “Ethereum killer”?
• Video: Is crypto a good investment?