Will crypto rise again – and what to do while you wait
Since 2020, the crypto market has experienced that most important bear season in history (coindesk), with the toughest wave persisting through 2022. From an all-time high of nearly $69,000 back in November 2021, bitcoin is now trading at around $20,000. And that’s only because it has made some recent gains. For several weeks the price stayed below this mark. The same goes for Ethereum, which is falling from an all-time high of nearly $5,000 to around $1,500 now. The story is even worse for altcoins as well as NFTs, which are mostly priced in cryptocurrency.
2.2 trillion dollars. That was the global cryptocurrency market cap as 2022 began. Twelve months later, the market value is around 1 trillion dollars.
This extended bear run has rekindled questions about whether the entire crypto mania is a bubble after all. Nevertheless, the unique challenges in the industry do not warrant an uncritical dismissal.
To understand today’s crypto dip, it is important to explore all the previous ways the market has fallen, with one starting between 2020 and 2021 after a relatively solid 2019. It all started with COVID-19, you could say, but the constant uncertainty of the past few months have brought to the fore the question of the viability of the crypto-economy amid various global events and critical market variables.
Why Dip?
Like all major downturns before it, the recent downturn in the crypto market is due to several factors. On the one hand, there is the challenge of high inflation, which the Federal Reserve has not been able to stop, despite rising interest rates. The most recent increase, to 3.9%, came on November 3, and experts are predicting that the rate could go up as high as 5% by March 2023. Many retail investors who have come to believe in crypto as a hedge against inflation come to terms with how crypto behaves similarly to traditional asset classes, especially stocks.
On the other hand, the recent escalation of the Russia-Ukraine conflict was an abrupt new dimension to the geopolitical tension in Europe that has destabilized the market. Beyond that, the war has also revealed how vulnerable cryptocurrencies are to government regulation.
By creating bitcoin, Satoshi Nakamoto had hoped to fight against monetary control by governments and traditional financial institutions. And indeed, one of the popular uses of crypto has been to circumvent government restrictions.
However, all of this has backfired for Russian crypto holders, who have seen their ability to trade crypto limited since the EU began hitting the country with sanctions. This has eroded much of the public’s faith in crypto, and as such contributed to its devaluing.
Nevertheless, some significant reasons for the decline are not systemic at all. For example, events such as the implosion of Terra and the LUNA ecosystem and the liquidation of Three Arrows Capital (3AC) are directly linked to falling investor confidence in the crypto market.
Moreover, before these challenges specific to this time, the crypto market faces some general obstacles that keep assets highly volatile, even when one would think that the market was already maturing. The simple reason is that cryptocurrencies are highly speculative assets by design and therefore structured for price fluctuations. But because of the high risk they carry, cryptocurrencies are also faced with persistent threats of (sometimes strangely strict) regulation, and the lack of clarity across the board, let alone less regularity, remains a path for growth.
In addition, it is noteworthy that whales significantly manipulate market prices. Therefore, the fact that many whales have dumped their BTC this year can be felt on the larger market and altcoins in particular. Back in July, one of the richest whales even dumped a total of 78,484 BTC, worth a whopping $1,400,000,000 at the time.
Market stability and resilience
In the midst of these sad stories, a ray of hope appears. For a market historically known to be highly volatile, BTC has shown some stability in recent months in terms of its price range and global market cap, which has been between $800 billion and $1.2 trillion since June. More so, bitcoin in particular has outperformed assets such as stocks, gold and even currencies such as the euro and British pound.
Despite this resilience and a brief gain experienced recently (finally crossing the $20,000 mark), it remains uncertain whether bitcoin will make a significant recovery before the end of the year. Upcoming midterm elections, Federal Reserve meetings and consumer price index reports will weigh in on the short-term direction of the cryptocurrency as well as the crypto market in general.
Don’t get your hopes up too high. Deutsche Bank may have reported an increase to $28,000 By the end of the year. With a drastic change in fortunes, the price should be in the $40,000 and $50,000 range by 2023 and perhaps even finally reach the $100,000 mark by 2025. But with less than eight weeks to go before 2022 and challenges persisting, it seems uncertain now. In any case, bitcoin predictions are as volatile as the asset’s actual price (some predict as low as $10,000), so it’s best not to rely on a single forecast.
How to invest
A record 78% of bitcoin units has not been used for any transaction in the past six months, indicating a strong HODL wave as holders look for opportunities to recoup their losses. The same applies to altcoins holders, but the latter group consists mostly of traders who take short positions in relation to long-term trades. As one expert notes, such a trend can lead to surprising price jumps, but due to major economic events, as well as the bitcoin bear, there have been no surprises yet.
In any case, you can dip buy crypto assets, HODL your current holdings, or consider these alternative ways to invest in crypto without directly owning any crypto coins:
- Buy shares in crypto-related companies: If you are wary of investing in crypto assets, invest indirectly by buying the shares of crypto-related companies from core crypto exchanges to businesses that only support the sector by accepting crypto payments.
- Invest in Bitcoin ETFs: Bitcoin ETFs themselves are not permitted under existing regulations to trade bitcoins. However, they trade financial products such as futures contracts as well as assets anchored on the price of bitcoin.
- Trade crypto options: BTC or ETH options allow you to trade without an obligation to own or sell the asset itself. In fact, as CoinDesk reports, BTC options are now on a neutral call-put bias, an indication that the decline will soon taper off gradually. If you are not so hopeful, options allow you to act on your speculations.
If you prefer to trade crypto directly anyway, the best long-term strategy is to shift from a “buy the dip” mentality to a risk-reducing approach. Expert recommendations for risk reduction include popular advice such as diversifying your crypto portfolio with more altcoins, maintaining the 5% rule for crypto investing, and hodling despite FOMO pressures. It’s obviously nothing out of the ordinary.
But there is a lot of promise to hold out in the sector, especially considering how it links to other innovative technologies such as web 3, decentralized finance and the metaverse. Actually according to opinions from technical managerscould a crypto bear market be an amazing opportunity to launch tech startups, especially with amazing opportunities to solve age-old fintech challenges using crypto and blockchain innovations.
Conclusion
So far, BTC has lost about 56% of its value since the beginning of 2022, and expectedly, other cryptocurrencies, including altcoins, have followed suit. The short-term future of the crypto market may be bleak, but there are good reasons to maintain long-term hopes for the sector’s sustainability. One aspect that does not disappear so easily, however, is volatility.
But as long as we continue to see higher highs and higher lows, as we have since around 2017, declaring that the crypto bubble has burst for good is just far fetched.
Featured Image Credit: Provided by the author; Pexels; Thank you!
