The high volatility of BTC and the bear markets associated with the halving tend to reduce investment and interest in the crypto market as a whole. Can this be avoided?
There are good reasons to be afraid. Previous falling markets have seen falls of more than 80%. While stinginess may be wisdom among many Bitcoin (BTC) maximalists, altcoin speculators know that handing over diamonds can mean near (or total) destruction.
Regardless of investment philosophy, participation in a low-risk environment is rapidly leaving the space. The purest among us may see a ray of hope as the devastation clears the forest floor of weeds and leaves room for the strongest projects to thrive. However, many seedlings are undoubtedly lost, which would themselves grow to great heights if given the chance.
Investment and interest in digital assets is water and sunshine for ideas and entrepreneurship. Less sharp downturns serve the market better; better a garden than a desert.
A Brief History of Cryptocurrency Bear Markets
To solve a problem, we must first understand its trigger. Bitcoin and the wider realm of digital assets have experienced a number of bear markets since their inception. According to some reports, depending on the definition, we are now in fifth place.
Five Bitcoin Bear Markets. Source: Trading View
The first half of 2012 was characterized by regulatory uncertainty, culminating in the shutdown of TradeHill, the second largest bitcoin exchange. This was followed by the Bitcoinica and Linode hacks, which lost tens of thousands of bitcoins and caused the market to drop by about 40%.¹ But the price, albeit briefly, rose to reach new highs above $16 before new hacks and fears emerged. regulatory authorities. and Bitcoin Savings and Trust Ponzi defaults caused the price to drop again by 37%¹.
Enthusiasm for the new digital currency didn’t last long as BTC rebounded, reaching an equilibrium around $120 for most of the next year before skyrocketing to over $1,100 in the final quarter of 2013 after being seized by the Silk Road Drug Enforcement Administration. central Chinese currency. The bank ban and the Mt.Gox shutdown scandal sent the market into a horrendously long pullback of 415 days. This phase continued until early 2015, when the price dropped to just 17% from the previous market high¹.
From that point on, growth was steady until mid-2017, when enthusiasm and market frenzy drove the price of Bitcoin up, peaking at nearly $20,000 in December. Rapid profit taking, new hacks and rumors that countries are banning the asset again led to a market crash and BTC has been in decline for over a year. 2019 brought a promising escalation to almost $14,000 and was well above $10,000 until pandemic concerns pushed BTC below $4,000 in March 2020. It took a staggering number of days – almost three full years – for the cryptocurrency market to recover its 2017 high².
But then, as many in space will remember, the “brrrrr” money printer. Global expansionary monetary policy and fear of fiat inflation have led to unprecedented asset growth.
Bitcoin and the larger crypto market hit new highs, hitting nearly $69,000 per BTC at the end of 2021 and over $3 trillion in total asset class market capitalization².
Decrease in the total capitalization of the cryptocurrency market. Source: Trading View
Since June 20, pandemic liquidity has dried up. Central banks are raising interest rates in response to alarming inflation figures, and the larger crypto market is supporting a total investment of a relatively meager $845 billion. more mature market. Undoubtedly, this is primarily due to the mania of incorporations and speculation around high-risk startups, which account for 50% to 60% of the total digital market capitalization².
However, not only altcoins are to blame. During the crash of 2018, the price of bitcoin fell by 65%.⁴ The rise and spread of the crypto-asset raised the alarm of regulators in many countries, and questions about the sovereignty of national currencies ensued.
How to reduce market risk?
So, of course, it is risk that is driving this excessive downward volatility. And we are in a risk-averse environment. Thus, our young and fragile garden is the first to wither among the convention’s more deeply rooted asset classes.