The crypto market is crashing. Many didn’t see it coming, and there’s hot debate as to when it will bounce back.
Bitcoin ‘hit an all-time high of more than US$68,000 (£55,600) in November 2021’ as stated by The Conversation, and has since ‘dropped below US$18,000.’
Bitcoin is not alone, with most major cryptocurrencies having fallen by around 70%.
This sounds like bad news for the industry, at first. However, you’ll probably have heard the phrase ‘buy the dip’. This essentially means that when prices are low, it’s the best time to buy before they go back up.
Crashes are never pleasant for those with existing investments in the game. In retrospect, however, we often see them as great opportunities for new investors to buy in at a more accessible cost.
In today's blog, we’re going to examine why the current crash is happening, when it’s likely to end, and if this really is the best time to get into the crypto market.
Crypto is now more widely accepted and trusted than in its early days. In a way, that’s bad for crypto.
Now that the asset class is being adopted by traditional finance, it’s more closely associated with the stock market, meaning it may be subject to the same macroeconomic factors and risks.
According to The Conversation, such factors include the ongoing war in Ukraine, the consequent rise in oil prices, and the recent increase in US interest rates by 0.75%.
All this has come at the same time as new regulations clamping down on crypto trading across the world. Combined, this means that crypto is taking an unprecedented hit.
Due to these disruptions, with values plummeting and lending platforms freezing transfers and withdrawals, investors are low on confidence.
The Crypto Fear and Greed Index is currently at 11/100, indicating ‘extreme fear,’ in contrast to the rate of 75/100 back in November when bitcoin reached its peak.
Fluctuations like this are to be expected in a volatile market. The danger is that we will see an exodus of investors from crypto altogether unless the market can mature into a state of reliability.
The term ‘bear market’ describes a prolonged period of price drops, usually characterised by a dip of more than 20%, according to Investopedia. In severe cases, a long-term bear market can last for decades.
Some certainly believe the downward trend is set to continue. ‘Scott Norris, co-founder of the private U.S.-based Bitcoin miner LSJ Ops, said he believes Bitcoin still could plummet to $11,000,’ according to Decrypt.
However, bear markets can also be cyclical, and end in a matter of weeks or months.
Charles Storry, head of growth at crypto index platform Phuture, told Fortune that the decline will last 18 months at most, and described the response as “short term fear and panic selling.”
With opinion among the experts so divided, it’s only possible to say one thing for sure: Yes, crypto is experiencing what classifies as a bear market. What that really means for investors, however, could be anything from short-lived discomfort, to the beginning of the end.
There have been multiple crashes and ‘winters’ in crypto during years past.
In 2012, the crash ‘lasted 185 days, with a peak price of $7.08 and a bear market low of $4.22.’ The 2014 bear market lasted 415 days, with a low price of $197.24. The longest began in January 2018, directly after the 2017 boom, and the market did not start to recover until a year later, as stated by Benzinga.
It’s not the first time that regulations have contributed to a crash, either.
According to Coindesk, ‘the largest crash ever recorded on bitcoin’s chart took place on April 10, 2013, shortly after the U.S. Financial Crimes Enforcement Network (FinCEN) announced bitcoin exchanges needed to register as “money transmitters.”’
This caused a price drop of over 73.1% in 24 hours. This is most likely due to fears that over-regulation will hamper the growth of the crypto industry, as well as the extra burden that regulations place on individual investors, which could discourage many from throwing their financial hats into the ring.
The same goes for world events. When the World Health Organisation declared a global pandemic in 2020, crypto fell by 40%, Coindesk stated.
The cause here is no mystery. In times of uncertainty or crisis, investors become far more risk-averse, no matter what kind of asset is in question. With notoriously unstable ones like crypto, the effect is intensified.
What can this teach us? Crashes should be expected in times like these.
Crypto investors who have read their history books will likely be playing a waiting game. At some point, the value of their assets will pick up again.
The broader question is, will a market as volatile as this truly last? And can crypto, by its very nature, ever become stable? This all depends on the growth of the market. If and when crypto becomes a ‘bigger pond’, factors like these will make smaller waves by comparison.
The crypto market has recovered from crashes aplenty. Then crashed again.
Many expect to see a bounce-back in the coming weeks or months, and we could see new highs in the future. Accounting for the multitude of different factors affecting the market right now, it’s almost impossible to say exactly when the crash will bottom out.
Blockchain as an industry is still growing rapidly, and emerging projects should mean sustained opportunities for profit.
Analytics insight suggests that ‘Bitcoin is an attractive buy right now,’ and that the recent interest rate hikes in the US could ‘help to curb inflation and bring some stability back to the crypto market.’
Ultimately, whether or not you’re attracted to ‘buying the dip’ is an individual choice, and we must stress that we’re not dishing out any advice, here.
On balance, all we can say is that while the bounce-back is hard to predict, there is potential for new investors to benefit when the market is reinvigorated, whenever that may be.