The cryptocurrency market is shaky at best. It has been very difficult to find much encouraging about the sector this year. With an overall decline from around $2.2 trillion to start the year to roughly approximately $850 billion as I write this, nearly any of the cryptos investors would normally buy are down big. Currently, the overall market is down in excess of 60% on a year-to-date basis. Over the last year, these losses have been even more severe, approaching 70%.
With FTX (FTT-USD) filing for Chapter 11 bankruptcy, contagion fears are bound to increase. Voices claiming that cryptos can broadly be defined as Ponzi schemes will only get louder in the wake of the debacle. Frankly, it’s wild to think that Sam Bankman-Fried, worth $16 billion to begin the week, will perhaps end this week penniless.
Indeed, the crypto market seems to be riddled with stories of the once-mighty falling from grace. I still believe cryptocurrencies can play a role in shaping the future of finance. My hope is that developers continue to build truly utilitarian projects. That is the only way forward if DeFi and blockchain technology will truly be revolutionary. In any case, let’s look at some of the cryptos that have fallen farthest from grace.
Avalanche (AVAX-USD) is a project that received a lot of attention as a so-called “Ethereum (ETH-USD) killer.” The main drawing point of Ethereum killers is that they excel where Ethereum doesn’t. These blockchains can process more transactions at greater speeds and do so at lower prices.
The problem, though, is that Avalanche is a follower and not a leader. Ethereum is one of the first and most important cryptocurrencies, while Avalanche is not. Ethereum boasts a market capitalization of $155 billion while Avalanche’s market cap is a relatively modest $4.2 billion.
That fact has mattered, as the capital flight out of crypto has been less-severe for seminal projects in the space. Ethereum has seen its valuation fall by roughly 65% in 2022. Avalanche has seen its price fall from $110 to begin the year, to $13 currently. That correlates to an 88% reduction in market cap.
Avalanche isn’t as reliable as Ethereum in the sense that it nearly shut down due to a bug that was exposed during a period of high traffic in early 2021. However, that didn’t stop investor capital from flooding in after the near-shutdown. Instead, Avalanche has faltered due more to macroeconomic factors overall. And there’s little reason to believe investors will change their minds soon when it comes to this crypto project.
Cronos (CRO-USD) has seen its losses outpace those of the broader cryptocurrency market in 2022. While the broader sector has seen its value drop by 60%, Cronos has seen its price drop by 85% during the same period.
Cronos is the child of Crypto.com, the payment services and blockchain finance company. At its height, it looked like Crypto.com and Cronos were destined to make waves in the crypto sector. Crypto.com paid handsomely to have its branding on the former Staples Center in L.A. a year ago. The move cost $700 million, and seemed more logical when the Cronos token was worth 10-times what it now is.
Part of the problem is that Cronos is a generic cryptocurrency and its success is predicated on the overall growth of the Crypto.com exchange. The CRO token powers the mobile payments app of its parent website and pins its success on vague notions like increasing personal control over money.
The problem is that it just hasn’t happened, and 2022 continues to be far different from 2021.
Filecoin (FIL-USD) falls in line with the general trend of the weaker performers highlighted in this article. This token has also shed 87% of its value this year.
The project centers around a decentralized storage system with the heady task to “store humanity’s most important information.” That kind of self-aggrandizing language played well before this year. It doesn’t now. That isn’t to say that bold claims are the reason Filecoin has lost so much value. It’s just that utility-first projects are more likely to thrive moving forward.
Filecoin’s utility comes from the fact that it powers the cloud file storage services the project is developing. It’s fair to argue that there’s real utility in open-source, decentralized cloud storage. I think we can all agree that it feels insecure to upload information to the cloud at times. Any service that increases security should surely have demand.
It’s fair then, that Filecoin argues against some of the pitfalls of AWS or Azure or any other cloud product. But it doesn’t have the ability to erode the power of those platforms at the same time. Investors liked this idea when quantitative easing was the norm. Liquidity was sloshing around the market and found its way into Filecoin. Under quantitative tightening, the idealist notions of the firm have far less pull.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.