Crypto early adopters regularly assure market watchers that everything is going to be ok. Why? Because they have seen it all before and this is not the first bitcoin bear market.
But one hedge fund partner believes the evangelists fail to note one key difference: Perception risk.
“Longtime crypto investors like to point out how bitcoin has had multiple previous big corrections. While that is correct from a return risk perspective, it fails to account for perception risk,” said Albert Wenger, managing partner at Union Square Ventures in a research note. “None of the prior corrections had remotely the same level of public visibility.”
And it’s hard to argue. The current bitcoin bear market has wiped more than $250 billion off the market value of the largest cryptocurrency, and from peak to trough, the total value of all cryptocurrencies has fallen more than $700 billion — it’s been hard to miss the 2018 crypto demise.
But only the early bitcoin bugs can attest to events like the 2011 selloff from $30 to $3, or the early 2012 move from $7 to around $4. So in reality, this bitcoin bear market is the first rodeo for most investors.
What does this mean? Buckle up, it might be a while before the crypto tide turns, said Wenger. “So to think that institutional investors will be piling in right now is to ignore perception risk,” he said. “To invest now means taking both return risk and perception risk. That’s why climbing out of the winter of the burst dot-com bubble took time and that’s why the same is likely to be true for crypto.”
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