The cryptocurrency market has been through the most significant bear season in its history (coindesk) since 2020, with the most severe wave continuing into 2022. Bitcoin is currently worth about $20,000, down from its all-time high of nearly $69,000 in November 2021.
And that is only because it has recently improved. The price remained below that level for weeks. The same is true for Ethereum, which has fallen from its all-time high of nearly $5,000 to approximately $1,500 at this point. The situation is even worse for NFTs and other altcoins, most of which are priced in cryptocurrency.
2.2 trillion At the beginning of 2022, that was the cryptocurrency market cap worldwide. The market cap is around $1 trillion twelve months later.
The question of whether the crypto craze as a whole is actually a bubble has been brought back up by this prolonged bear run. However, the industry's unique difficulties do not necessitate an uncritical dismissal.
It is essential to investigate all previous market declines in order to comprehend the current crypto slump, with one beginning in 2020 and 2021 following a relatively solid 2019. One might say that COVID-19 was the beginning, but the constant uncertainty of the past few months has raised the question of the crypto economy's viability in light of a variety of global events and important market variables.
Why the decline?
The most recent slump in the cryptocurrency market is caused by a number of factors, just like every major downturn before it. On the one hand, there is the problem of high inflation, which despite the Federal Reserve raising interest rates has not been stopped. On November 3, the rate was increased to 3.9%, and experts anticipate that it could reach 5% by March 2023. Cryptocurrency's behavior is similar to that of traditional asset classes, particularly stocks, which is something that many retail investors who have come to believe in it as a hedge against inflation are coming to terms with.
However, the market has been destabilized by the sudden addition of a new dimension to the geopolitical tension in Europe brought about by the recent escalation of the Russia-Ukraine conflict. In addition, the war has revealed the extent to which cryptocurrencies are subject to government regulation.
Satoshi Nakamoto's goal when he created bitcoin was to take control of money away from governments and traditional financial institutions. Indeed, one popular application of cryptocurrency has been to circumvent restrictions imposed by governments.
However, since the EU began imposing sanctions on the nation, holders of Russian cryptocurrencies have had their ability to transact cryptocurrencies restricted. As a result, cryptocurrency's value has decreased as a result of this erosion of public trust.
Nevertheless, there are significant factors that are not systemic that account for the dip. Incidents like the implosion of the Terra and LUNA ecosystem and the liquidation of Three Arrows Capital (3AC), for instance, are directly related to a decrease in investor confidence in the cryptocurrency market.
Additionally, despite the appearance of market maturity, the crypto market still faces a number of general obstacles that keep assets highly volatile prior to these challenges specific to this time. Simply put, this is because cryptocurrencies are designed to be highly speculative assets and are therefore designed to fluctuate in price. But because of the high risks they pose, cryptocurrencies are also constantly threatened by (sometimes strangely stringent) regulations. Additionally, there is still a lack of clarity throughout the industry, if not regularity.
Additionally, it is noteworthy that whales do significantly influence market prices. As a result, the larger market, and especially altcoins, are feeling the effects of the large number of whales selling their BTC this year. One of the richest whales even dumped 78,484 BTC in July, which was worth a staggering $1,400,000,000 at the time.
Market Stability and Resilience In the midst of these depressing tales, there is a glimmer of hope. BTC has shown some stability over the past few months in terms of price range and global market cap, which has been between $800 billion and $1.2 trillion since June, for a market that has a history of being extremely volatile. Particularly, bitcoin's performance has outperformed that of other assets like stocks, gold, and even currencies like the Euro and the British Pound.
It is still uncertain whether bitcoin will stage a significant rally before the year's end, despite this resilience and a brief gain (finally crossing the $20,000 mark). The short-term direction of the cryptocurrency and the crypto market as a whole would be influenced by reports from the Consumer Price Index, the Federal Reserve, and the upcoming midterm elections.
However, don't get too excited. By the end of the year, Deutsche Bank may have reported a rise to $28,000. By 2023, unless things drastically change, the price should be somewhere between $40,000 and $50,000, possibly even reaching $100,000 by then. However, with less than eight weeks until the end of 2022 and ongoing difficulties, that appears uncertain right now. In any case, it's best not to rely on a single prediction because bitcoin predictions are as erratic as the asset's actual price (some predict as low as $10,000).
How to Invest A record 78% of bitcoin units haven't been used in half a year, indicating a strong HODL wave as holders look for ways to recoup their losses. The same is true for holders of altcoins, but most of them are traders who take short positions rather than longer-term trades. Experts say that such a pattern could cause unexpected price rises, but due to larger economic events and the bitcoin bear, no such rises have yet occurred.
In any case, you could buy the dip on crypto assets, hoard your existing assets, or look into these other ways to invest in cryptocurrency without actually owning any coins:
Purchase shares in crypto-related businesses: If you're hesitant about investing in crypto assets, buy stocks of crypto-related businesses from core crypto exchanges to businesses that merely support the industry by accepting crypto payments.
ETFs that invest in Bitcoin: Existing regulations prohibit the trading of bitcoins by Bitcoin ETFs. On the other hand, they trade bitcoin-based assets and financial products like futures contracts.
Invest in crypto options: You can trade BTC or ETH options without having to own or sell the asset itself. In point of fact, BTC options are currently at a neutral call-put skew, as reported by CoinDesk, indicating that the dip will soon gradually recede. Options let you trade on your speculations if you're not so optimistic.
The best long-term strategy is to shift from a "buy the dip" mentality to a "risk mitigation" approach if you would rather trade crypto directly regardless. Popular risk-reduction strategies include maintaining the 5% rule of crypto investing, diversifying your crypto portfolio with multiple altcoins, and holding off despite FOMO pressure. Clearly, there was nothing unusual.
However, the sector holds a lot of promise, especially when you consider how it ties into other cutting-edge technologies like web 3, decentralized finance, and the metaverse. In point of fact, tech executives have the opinion that a bear market in crypto can be a great time to start a tech startup, especially if you can use crypto and blockchain innovations to solve old fintech problems.
Conclusion Since the beginning of 2022, BTC has lost approximately 56% of its value, and it is reasonable to anticipate that other cryptocurrencies, including altcoins, have followed suit. Although the cryptocurrency market's short-term prospects may be dim, there are good reasons to maintain long-term optimism regarding the sector's viability. Volatility, on the other hand, is one aspect that won't go away as quickly.
However, declaring that the crypto bubble has burst permanently is implausible as long as we continue to see higher highs and higher lows, as has been the case since around 2017.
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