Is the worst over for Bitcoin and the rest of the cryptocurrency?

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The FTX breakdown It caused the prices of Bitcoin and other cryptocurrencies to drop more than 60% this year…and the carnage spread to publicly traded companies with exposure to digital assets.

shares CoinbaseSquare owner block

(square foot)Top bitcoin miner hive

(HVBTF) and riot

(riot)Silvergate Crypto Bank

(SI) and software company MicroStrategy

(MSTR)Led by a cryptocurrency evangelist Michael SaylorThey have all declined in the past month.

But is the worst over? After all, volatility was a constant in this still nascent industry. The cryptocurrency is known for its huge drops and amazing epic comebacks.

This is not the first encryption winter, as long-term Bitcoin enthusiasts can attest. There were massive corrections in 2018, and early 2020 and summer 2021 as well.

So can cryptocurrency and stock prices rebound in 2023? Some cryptocurrency bulls think so…but they think investors need more reasonable expectations.

“It is very clear that we as an industry need to build better products,” said Hani Rashwan, CEO of 21.co, a crypto investment firm. “There was a lot of fluff in the last bull market. People were chasing plenty.”

However, Rashwan said he was a bit surprised that the cryptocurrency massacre wasn’t worse.

Despite the recent sell-off (bitcoin dropped more than 15% in November alone), the bitcoin price is still hovering around $17,000. That’s about three times as much as prices were during the depths of the crypto bear market in the pandemic’s early days of 2020.

“How are we still close to $17,000? That says something. It is an indication that people are still using cryptocurrencies and trying to protect assets. Confidence has not been shaken to the core,” Rashwan said.

Others point out that the underlying blockchain technology behind bitcoin and cryptocurrencies is still going strong.

“We will see some challenges for the foreseeable future. But we expect improvements ultimately. This will be a catalyst. There will be increased institutional adoption,” said John Avery, strategy and product lead for Cryptocurrency, Web3 and Capital Markets at FIS.

Avery said he also expects to see more regulatory clarity for cryptocurrencies in 2023. That will eventually be a good thing.

“There is always that need to balance innovation with investor protection,” he said. “Regulation doesn’t always solve all of this. But it is important.”

Others point out that the rapid demise of FTX should also serve to harden the companies that survive this cryptocurrency meltdown. Coinbase in particular could end up benefiting in the long run, though the stock is currently taking a beating.

“The rapid failure of FTX will warrant greater regulatory oversight and scrutiny of the sector, which we expect will eventually translate into clearer guidance for cryptocurrency market participants,” said Fadi Masih, vice president of the Financial Institutions Group at Moody’s Investors Service. “This potentially benefits Coinbase, given its size and more established position in the sector.”

But it is hoped that the problems with the cryptocurrency will prove to investors that bitcoin is not (and likely never will be) an alternative to the US dollar or other government-backed currencies. Cryptocurrency is still a speculative asset. This is not a problem in and of itself. But investors just have to know the risks.

“Cryptocurrencies have been praised by some for their decentralized nature, ease of transaction and low transaction costs, but even bitcoin, the oldest cryptocurrency, remains more volatile than stocks and bonds, preventing it from being a store of value.” Jason Pride, chief investment officer of Private Wealth and Michael Reynolds, vice president of investment strategy at Glenmed, said in a report.

Pride and Reynolds added that it is a mistake to think that bitcoin can hold up well during stock market volatility. Instead, this year has proven that cryptocurrency is not a good hedge, especially when it comes to tech stocks. So that also “significantly limits its use as a catalyst for portfolio diversification.”

The chaos over cryptocurrencies comes at a time when the broader stock market has enjoyed an already impressive comeback. Investors were cheering the prospect of smaller interest rate increases by the Federal Reserve. They also expressed hope that corporate earnings will be above expectations, as consumers and businesses continue to spend.

There will be quite a few notable companies reporting earnings next week across a variety of key sectors, including AutoZone.

(AZO)Homebuilder Toll Brothers

(TOL)Campbell’s soup

(CPB)Brown-Forman liquor maker

(BFB)GameStop

(GME)Chewy

(CHWY)from Broadcom

(AVGO)Costco

(cost) and Lululemon

Favorite.

But one market strategist worries that the results of the fourth quarter and 2023 could disappoint Wall Street. Higher Fed rates may eventually have a negative impact on demand.

“Earnings shoes are starting to fall,” said Kevin Barry, chief investment officer at Summit Financial.

Barry noted that pockets of the market that were once thought immune to economic pressures, particularly social media and technology, have finally proven to be cyclical. Facebook owner Meta platforms It was a terrible stock this year, for example. and Salesforce cloud software leader

(CRM) I mentioned recently Underwhelming steering.

Monday: US ISM Services Index; China Caixin PMI Services

TuesdayEarnings from AutoZone, Signet

(SIG)Toll Brothers, Dave Webster

(game) and Stitch Fix

(SFIX)

Wednesday: Chinese trade data. rate decision india; Earnings from Campbell’s Soup, Brown Foreman, Primary Outlet

(OLLI) and GameStop.com

Thursday: weekly unemployment claims in the United States; Japan’s GDP earnings from Ciena

(CIEN)And Costco, Broadcom, Chewy, and Lululemon

Friday: producer price index in the United States; Chinese inflation; US consumer confidence from Michigan; earnings from Lee Otto