Is Bitcoin Dead? A look at the cyclical nature of crypto markets

Is Bitcoin Dead? A look at the cyclical nature of crypto markets

Since Bitcoin’s early days, its once status as an uncorrelated digital asset or cryptocurrency has led it to experience bouts of severe volatility compared to other types of traditional investments. This instability has led naysayers and critics to declare death more than once! Today we examine the cyclical nature of the crypto market and why Bitcoin has proven it’s here to stay.

Bitcoin’s volatility is legendary, where fortunes are made and lost

Ever since the Bitcoin Genesis Block was mined in January 2009, Bitcoin has seen wild fluctuations in price. At first it was extremely volatile as it was a new, low-liquidity, start-up market, based on experimental technology, which had very little market depth and low adoption. Recently, it has been volatile due to the hype and exuberant profits surrounding the 4-year Bitcoin halving cycle.

The halving occurs when Bitcoin algorithmically reduces the amount of newly minted Bitcoins produced by Proof of Work (PoW) miners by half. The halving happens every 210,000 blocks, or every 4 years on average.

In the past year, we have witnessed the epic collapses of many of the most popular exchanges, stablecoins and lending platforms in the crypto space. These unfortunate events have led many newcomers to crypto to predict that it’s dead, it’s over, it’s time to pack it all up and go home. Admittedly, this bear market has been particularly intense for many users and investors who weren’t around for previous crypto bear markets, but for those who were, it’s been par for the course.

Previously, the crypto market was a niche market that was seen as risky due to the lack of regulatory oversight. Bitcoin and crypto were seen as illegitimate, and businesses, financial institutions, and investors tended to avoid participation in the crypto markets for these reasons. There were many scams, scams and other pitfalls for early investors.

This began to change around 2015, when the ICO boom began to take off, crypto-focused hedge funds began to appear, mainstream financial media began to regularly cover the markets, and regulators began to think about how they would introduce a fair set of rules for the crypto markets.

Crypto markets at the time were unconventional, decentralized and a very different beast than traditional markets. Everyone started to realize that crypto might be more than a passing fad, that there might be something more to this new technology, and that it might be here to stay for a long time.

Bitcoin Halving’s Impact on Crypto Asset Prices

Bitcoin leads the crypto market, as the original cryptocurrency. It is the largest coin by market cap, the most used, the most liquid coin, and it is also the primary quote currency in crypto trading pairs on most major cryptocurrency trading exchanges.

This means that wherever the Bitcoin price action goes, the majority of the other 22,357 altcoins to date usually follow. There are some outliers that tend to counter Bitcoin’s market momentum, but overall, Bitcoin is the leader and influences the price of most other coins.

Bitcoin’s price action so far, in the 14 years since its launch, has been dominated by the halving cycle. Usually, leading to a halving and shortly after, Bitcoin has an explosion in price, causing more and more investors to pile into the market.

This continues until it reaches a point where the price action becomes an irrational and unsustainable bubble. This is when the Bitcoin price tends to have a huge collapse as the smart money takes profits and exits the market, leaving the latecomers and less wise investors who bought near the top with the bag.

This market cycle that occurs after each halving has led to the washout and collapse of countless altcoins, exchanges, and crypto startups with business models that did not take this volatility into account. Bitcoin has routinely collapsed in price with moves of up to 90% or more, on several occasions since 2009.

Those who manage to hold on to the coins until the next halving after buying the top are usually celebrated by the Bitcoin community as blessed with “diamond hands” forged in a trial by fire, and handsomely rewarded for hodling to new all-time highs. It sounds so simple and is anything but simple. Just ask any Bitcoiner about their hodling stories.

The first Bitcoin bear market in 2011 saw a bullish rise to $32 per BTC and then the price collapsed to $0.01, following the infamous Mount Gox hack. This led to the historic first published proclamation that Bitcoin was dead. It has sort of become a meme in the crypto world, that during the bear market part of the 4-year halving cycle in crypto, the media makes several proclamations about the death of Bitcoin.

Several websites have tracked these announcements, which have become known as “Bitcoin obituaries,” by listing every time the media has published a story about Bitcoin’s death. Currently, we are up to 469 different proclamations of the death of Bitcoin. Despite the repeated claims of financial “experts” in the media, somehow it still won’t die, despite their wish that it would.

Dead Coins, insolvent exchanges, failed startups and other tragedies

With the 2022 Terra collapse, the insolvencies of Three Arrows Capital, Voyager, Celsius and FTX, and the more recent Digital Currency Group (DCG) and Genesis/Gemini controversy, it may seem like an earth-shattering wave of bad news for crypto. But if we examine history, we will see that it is not the first time something like this has happened.

If we take a look at the historical snapshots on Coinmarketcap, the ranking of crypto assets may seem completely foreign to those currently investing in the crypto markets. We see a number of coins that may be unfamiliar to newcomers. Projects with strange names such as Mincoin, Novacoin, Freicoin and Peercoin. These projects were the first Bitcoin forks, which were the first altcoins.

Many of these projects no longer exist, they have been abandoned and are known as “dead coins”. Apart from abandoned coins, there are also scam coins, failed ICO coins, as well as failed meme or joke coins. All told, there are over 2,000 entries on popular lists of dead crypto-activists. Many of the more than 20,000 current altcoins may soon join the ranks of dead coins from previous market cycles.

Crypto exchanges have also historically been a notoriously tough business to run successfully. Over the years we have seen many, many, exchanges fail for a variety of reasons. Reasons for failure have often been things like mismanagement of funds, regulatory issues, exchange hacks, fraud, and simply the inability to compete profitably in a notoriously tough business. Cryptowisser.com has a great site that tracks exchange failures for those interested in the full overview.

It has been said that as much as 42 percent of exchanges fail. Currency failures increased by 252 percent in 2019, and increased again by 17 percent in 2020. From November 2021, we saw the beginning of a series of collapsed projects, lending platforms and exchanges that created the fallout and current market turmoil of our crypto winters. Although the markets have seemed to pick up a bit in recent weeks, we may not be out of the woods yet.

In addition to dead coins and failed exchanges, past crypto market cycles have also witnessed the failures of countless crypto startups. News site Bitcoinist reported that as much as 92 percent of crypto startups fail, and these failed blockchain startups tend to have a very short average life expectancy of just 1.22 years.

While startups in general are well-known for being difficult to launch successfully, many crypto-specific startups seem to be even more difficult to get off the ground. Startups like R3, Earn.com, Graphite Docs and too many others to list have failed for a variety of reasons.

The main causes of crypto startup failure are things like creating a solution that seeks a problem to solve, a bad business model that doesn’t take into account market volatility, building vaporware that relies on hype and buzzwords, banking on the run. night token trends in a market cycle, trying to use a blockchain for something that can be done more easily or efficiently without one.

“Reports of my death have been greatly exaggerated” – Mark Twain

Even with the astonishingly high failure rates in the crypto markets, with an extensive list of examples of dead coins, failed projects, and former billion dollar startups going bankrupt, it is clear to anyone who has been paying attention that the overall crypto asset industry is here to stay.

We are witnessing the turbulent emergence of a new asset class, and a completely new digital form of programmable money for the first time in human history. The road is going to be bumpy, just as it was with other previous S adoption curves for new technologies.

Despite the negativity surrounding the crypto industry during this current bear market cycle, crypto has remained resilient, usually bouncing back with even more strength and vigor throughout its short but 14-year history, and we expect it to do so this time as well. .

This isn’t the first time we’ve seen many projects, startups, lenders and exchanges fail, and it certainly won’t be the last. In comparison, we still see big players in traditional industries making serious mistakes that lead them to bankruptcy, and the crypto industry is no different. With its increased volatility and market momentum, we see it simply as amplified, leading to the oft-repeated and sensational claims that it is dead, once again.

Nothing could be further from the truth.