Why invest in crypto?
We did an introduction to “What is Web3 and why it matters?”
Now let’s discover why should investors care about Web3.
In this article, we will cover:
- Historical performance
- Performance vs. other assets
- Market size
- Adoption
- Maturity
Let’s dive in.
Historical performance
When looking at the individual yearly returns, we can get quickly confused with the abstract numbers ranging anywhere from -30% to +70% in a single month and -70 to +1300% in a year.
And this is just the last 10 years, the time before was even crazier → in 2013 BTC did around +4,3k%
But bringing in the total returns over a couple of years can already give a better idea about the performance.
We can see that Bitcoin is doing quite well.
And what‘s more, even if we take the worst possible time to buy, which would be ATH in December 2017, and sell also in the worst possible time, the end of the last bull market in December 2022, we would still get a return of 3,55% p.a.
A side note, it took Nasdaq 15 years to recover from the dot-com crash.
BTC can crash and recover in 4-year cycles.
Speaking of timing,
→ Investing 1 year earlier = 35.08% p.a.
→ Investing 1 year later = 23.74% p.a.
→ DCA in the worst period = 9.13% p.a.
Performance vs. Other assets
When comparing the returns of BTC and ETH with other assets, they both come out as clear winners over longer periods.
However, comparing the performance in too long periods does not seem fair, since BTC was too volatile and could be treated as a startup rather than a mature asset class.
To illustrate this point, from 2014 to 2023, the S&P index averaged a nice 13.13% p.a.
However, over the same period, BTC returned an average of +194% to investors. Per year.
Let’s choose a different period, and that would be January 2018 to January 2024 (today).
January 2018 was still the middle of a raging bull market and both BTC and ETH were priced very high compared to years before and after.
Below we can see the performance in the “bad times”.
Even when choosing a very unfavorable period for the BTC and ETH, they still outperform the other asset classes.
Going only one year further, we already see the full strength of crypto returns.
Market size
It would be highly unfair to compare a startup’s performance to the S&P 500, so let’s explore the size of the BTC market.
As of January 2024, the market capitalization of cryptocurrencies is at $1.773 trillion, with Bitcoin alone at nearly $850 billion.
This makes the crypto market slightly bigger than Silver, which is $1.302 trillion.
At its peak in November 2021, the crypto market was 3x bigger than silver, and we expect it to go even higher with the upcoming bull market in 2024–2025.
This is still a friction compared to the S&P 500 index which has around 40 trillion market capitalization.
However, Ethereum (2nd biggest cryptocurrency) itself has a higher market cap than Bank of America, Shell, or Netflix.
Outcome? It’s not an asset to be ignored, nor a speculative bubble anymore.
Adoption
Let‘s not focus only on the economic factors, crypto is about new technology, so let’s take a look at its users.
The year 2022 was challenging for everyone, especially the Web3 industry.
There was a global economic slowdown → the S&P was down by -18% that year, and in the last 10 years it recorded only 2 negative periods, 2022 and 2018 with a negative 4%.
FED hiking rates and lowering liquidity, geopolitical conflicts, you name it.
And on top of that a few crypto-specific issues you probably saw in the news, like the fall of Terra Luna, 3AC, or one of the biggest crypto exchanges FTX — more known as the Sam-Bankman Fried or SBF case.
Despite all of this, cryptocurrency owners increased by 39% in 2022 — rising from 306 million in January to 425 million identity verified users in December. All while the total market decreased by $2.2 trillion in 2022
That‘s a huge thing, more users came to experience the new tech not only because of crazy gains from the raging bull market, but also because of the technology, applications, and protocols.
In 2023 the growth was slower, down to 35% from 39%, but still a decent number for something that‘s 15 years old.
For better reference, that‘s more than twice the number of all Netflix subscribers (250m users in January 2024).
Maturity
As more investors, institutions and governments are entering the space, the Bitcoin price and with that the whole crypto market is getting more stable.
Not only the market is bigger every cycle, but the spikes are stabilizing.
This reduces the potential gains, but also the drawbacks, making the asset more mature and easier for investors to use.
Until now crypto was considered a domain for tech-savvy investors, who understand the basics around cryptography and managing their own wallets.
With the recent spot ETF approval, every investor, including institutions, can now access Bitcoin (and soon Ether as well) as they do in traditional markets.
Such moves by established financial players underscore the legitimacy and potential of cryptocurrencies as an essential part of modern investment portfolios.
