After years of explosive growth, record-setting bull markets and institutional adoption, the cryptocurrency sector is experiencing one of its toughest periods yet. As global markets approach their end dates this year, data increasingly indicates that crypto has become one of the worst performing asset classes, trailing behind stocks, bonds, commodities and even traditional lower yield investments in terms of performance.
Investors are left perplexed by this dramatic reversal, questioning what went wrong — and whether its downturn represents temporary correction or more profound shift in digital assets.
An Epochal Year Marked by Volatility and Value Deterioration
Crypto’s underperformance has been driven primarily by extreme volatility and deep price corrections across major assets. Bitcoin and Ethereum, once seen as leading market recovery during bearish phases, have failed to deliver stellar performances recently. Many mid-cap and small-cap tokens have seen 50-88% losses, leaving some struggling tokens scrambling just to stay afloat.
Traditional markets – particularly U.S. tech stocks and gold – have outshone crypto, benefitting from rising earnings, improved liquidity conditions and flight-to-safety sentiment among global investors.
Macroeconomic Pressures Weaken Digital Assets
Crypto markets have experienced internal shocks before, but this year’s plunge can largely be explained by macroeconomic conditions:
- Higher interest rates
Central banks’ policy rates have been raised in response to inflation, making higher-risk assets such as crypto less appealing. With investors looking for safer returns than in crypto, investors have shunned speculative assets like cryptocurrency as investors seek safer returns from other forms of investing. - Strength of Dollar A stronger dollar environment has historically caused crypto markets to experience severe pressure, prompting global investors to move away from riskier currencies and assets such as crypto assets.
- Reduced Liquidity
Tighter financial conditions have reduced liquidity across exchanges, leading to reduced trading volumes and sharp price swings that disincentivise institutional players from engaging.
Regulatory Uncertainty Remains an Issue
One key contributor to cryptocurrency’s poor performance has been regulatory uncertainty. Over the year:
New enforcement actions were initiated against exchanges and lending platforms in January 2019.
Multiple countries tightened their reporting and tax frameworks in recent months.
Uncertain classifications regarding tokens and stablecoins created investor unease, leading them to avoid investing.
Instead of building trust, the regulatory landscape has fostered confusion, fragmentation, and variable compliance costs across jurisdictions.
Sentiment Has Revamped Dramatically for Investors
Retail participation — once the primary driver of cryptocurrency bull runs — has decreased as investors who entered during previous peaks have left due to repeated losses. Institutional enthusiasm had once soared as firms assessed risk models and exposure levels towards digital assets.
Due to the failure of several major crypto platforms over recent years, trust issues still linger; yet even with improved transparency efforts underway, investors’ trust remains fragile.
What Is the Long-term Outlook? While short-term conditions remain dismal, some analysts speculate that the downturn could pave the way for an eventual improvement in overall economic health. Key developments include:
Continued growth in tokenizing real-world assets
Recent advances in blockchain scalability and interoperability demonstrate its viability as an infrastructure solution for any organization.
Long-term investors show growing enthusiasm for Bitcoin.
Expanding regulatory frameworks could potentially simplify compliance paths.
History shows that crypto markets often go through long, deep cycles before returning to higher growth phases. Whether this pattern holds is dependent on economic conditions, regulatory clarity and their sector’s ability to regain investor trust.
Conclusion
2018 will likely go down in history as one of the toughest years for cryptocurrency investment performance, trailing other major asset classes by significant margins. A combination of macroeconomic pressure, regulatory uncertainty, liquidity challenges and shaken confidence have left crypto at the bottom of global investment performance rankings.
Still, blockchain innovation’s long-term potential remains undiminished despite current difficulties. Over the next several months will tell if crypto can recover its position as one of the world’s most dynamic financial sectors.
