Saturday, January 28, 2023

Through 2021, the crypto market was very volatile, with bitcoin plunging almost 50 per cent between April and July.

  • So far, in 2022, the crypto market has taken a beating.
  • Understandably, crypto investors are concerned about whether the good days will ever return.
  • Cryptocurrency is notoriously volatile, and there is always the risk that it may not recover, particularly for lower-value and less popular currencies.

So far, in 2022, the crypto market has taken a beating. That comes as no surprise, but a time has come when even the most ardent crypto enthusiasts wonder; will crypto ever recover from the current crypto market crash?

The stock market, different from cryptocurrency, has set behavioural precedents over the years. In stocks, it is possible to look back at past market slumps and find similarities that resemble the current economy and market occurrences.

History can offer insight into what to expect in future and optimism that, eventually, things will likely turn around and stocks that have lost money will recover. That is not always the case with individual stocks, but the overall stock market always finds a way to recover, moving above the previous high.

Cryptocurrency does not have such a long track record. Bitcoin launched in 2009, but it was not until 2017 that it began to gain mainstream attention. Bitcoin and the overall crypto market have already gone through many boom-and-bust cycles in that period. Given that the crypto market is still nascent, does the past offer clues on when the ongoing crypto market crash will end?

READ MORE: Crypto market crash and the effect on the wider financial ecosystem

Current status of the crypto market

The crypto market’s current run began shortly after the Covid-19 pandemic. With everyone on the planet confined at home and a lot more time on their hands, the focus shifted to investment.

With jokes like GameStop and the stock market, cryptocurrency was suddenly gaining traction. More attention equals more purchasing, and more purchasing equals higher pricing.

This popularity surge was not limited to bitcoin, with alt currencies like Ether and Dogecoin entering the market and making billionaires. Elon Musk, Mark Cuban, Paris Hilton, Logan Paul, and Kim Kardashian all got on the crypto bandwagon by 2021.

Through 2021, the crypto market was very volatile, with bitcoin plunging almost 50 per cent between April and July. It rebounded almost as swiftly, rising to over $70,000 before the recent drop.

Bitcoin is now trading below $17,000 again. Some currencies have performed much worse. From a peak of almost $4,600, Ethereum is trading at just over $1,200. Dogecoin’s price has dropped from a high of $0.65 to the current level of $0.1.

Terra Luna has completely crumbled. Celsius, a DeFi platform, and FTX, a crypto exchange, have gone bankrupt, while Coinbase has fired thousands of employees. Understandably, crypto investors are concerned about whether the good days will ever return.

Previous crypto winters

crypto winter

Experts warn of an upcoming crypto winter in the midst of Africa’s success in crypto adoption.[Photo/Bitcoinist]

According to digital asset fund manager Grayscale Investments, the current crypto winter started on June 13, 2022. This revelation may surprise many considering that Bitcoin had already dropped by more than 60 per cent at that time. Grayscale made this contrast to account for the rapid spike in prices before the decline by doing blockchain research to determine the moment at which most crypto investors were carrying losses from their purchase price.

The last major crypto cycles, which occurred in 2012 and 2019, lasted an average of four years from peak to trough. Considering the current slump has only lasted a few months, the crypto market might be in for a long winter.

In both instances, the crypto winter was punctuated by a catalyst that boosted interest in and adoption of bitcoin and other cryptocurrencies. Mt Gox, the first extensively utilized cryptocurrency exchange, and the Silk Road emerged in the 2012 crypto winter.

This enabled the adoption of bitcoin as a legitimate currency for making purchases. The products in question were not entirely legal, and the Silk Road was ultimately closed down. Nonetheless, it established a precedent for a cryptocurrency-based marketplace.

The most current bull market started with the 2017 ICO craze, which saw many ‘altcoins’ (tokens and crypto coins other than bitcoin) enter the market. Some of these currencies have grown in popularity and provided significant returns to initial investors. Many more have gone bankrupt or turned out to be pure scams. There is no way of telling when (or even if) the present crypto winter will end or answering the question; will crypto ever recover? But if history repeats itself, the market may not see another bull run until 2026.

READ MORE: Africa’s crypto ecosystem affected by FTX collapse

Will the crypto market ever recover?

The question in the minds of investors and enthusiasts is, will the crypto market ever recover? This is a challenging question since bitcoin and other cryptocurrencies lack fundamentals like a publicly listed firm does.

An investor values a company stock since it creates cash flow. The company’s gains often revert to shareholders in the form of a dividend, at least in part.

This profit may be used to evaluate the firm’s fundamental value to other companies in the same industry and compare whole sectors to others.

This is not true of cryptocurrencies. Crypto lacks a method for paying revenue without the involvement of a third party, such as lending it to someone. As a result, since cryptocurrency is founded on speculation, its future value cannot be determined on a fundamental premise.

Of course, if it gets more commonly accepted, it will have value because other people consider it to have value. This transition is referred to as the ‘network effect.’ It is comparable to how gold and other precious metals have been regarded for thousands of years. Although gold has particular industrial use, the bulk of its worth is attributed to the fact that it is rare, and people have collectively decided over many generations that it is precious.

Bitcoin, Ethereum, and other cryptocurrency projects have significantly enhanced their network impact in recent years. Not only are more individual investors participating, but so are venture capital firms and several big publicly traded corporations.

Not only are more individual investors participating, but so are venture capital firms and several big publicly traded corporations.

The crypto market is approaching the point when it will be too integrated into mainstream financial markets to fail. Cryptocurrencies may be already present, but this remains to be seen.

Crypto market prospects and investment insights

The guidelines for investing in cryptocurrency are similar to the rules for investing in stocks. Recognizing the risks associated with investing in highly volatile, high-risk assets such as cryptocurrency remains critical. There is always the possibility of losing the money invested.

As a result, as with any investment, one should never invest more than one can afford to lose. This is especially true in the case of cryptocurrency, which many consider a speculative asset with an unclear track record.

Buying crypto in a down market, particularly reputable currencies like bitcoin and Ethereum, might offer a delightful deal for those with money to play with and are prepared to take a risk for significant profits.

Many of the biggest coins should survive the crypto winter and gain value in the long run. This gives the cryptocurrency market a good chance of recovery. However, cryptocurrency is notoriously volatile, and there is always the risk that it may not recover, particularly for lower-value and less popular currencies.

Cryptocurrency is becoming more popular. A rising number of businesses accept it as a means of payment. However, no one knows whether today’s currencies will be there in decades. Thus, for those ready to hold for the long term, more renowned coins such as bitcoin may give some security and stability against crypto market crash fears.

READ MORE: Stocks and crypto: Which is a better investment?

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