What is it like to lose 50% of your investing position in two months? The recent crypto selloff has some investors lamenting, while others are enthusiastically buying tokens at a lower price. In these markets only one thing is certain, timing is everything.
Many components are involved in markets’ peaks and valleys. This fact is true whether discussing the current market, the 2008 financial crisis, or the crypto winter in 2018. For example, experts have concluded that the main reasons for the 2008 recession included the governmental housing policies at the time, and the limited regulation of non-depository financial institutions. Similarly, there are many aspects currently that have negatively affected the crypto market.
While the reasons for the downturn are generally as speculative as the markets, there are a few components that may be responsible for the current crash. The first is that the Russian Central Bank plans to ban cryptocurrency. Similar to China, the Russian Central Bank stated it was proposing to ban all use and mining of cryptocurrencies on Russian territory. Another component is the federal reserve’s hawkish stance to hike interest rates this spring, which are having adverse effects on the entire technology sector, crypto included.
Bitcoin, the original cryptocurrency and major market mover, is down 49% (Jan 22) from it’s all time high in November. For those watching from the sidelines, a major selloff like we’ve seen in the past two months sends an obvious message: stay away. But for those who have been investing in crypto beyond the current cycle, this dip is nothing.
For some context in 2018, the global crypto market cap exploded over $800 billion prior to its sharp descent, with Bitcoin grazing a $20k all-time high. At its depths the market saw a 90% decrease, resulting in a $3k Bitcoin, and the type of opportunity that created unprecedented wealth in 2021.
Now it’s easy to point to previous market cycles as a forecast of the future, but this time everything is different, right?
Well, yeah, it is.
Rise of Crypto Communities
NFTs have changed the conversation around the value and utility of the blockchain. Proof of ownership and non-fungibility are currently stuck with images of pixelated profile pictures and smoking apes worth $200k. The innovation inherent in the industry looks to provide much more than that in the coming years. Even already, some musical artists have begun to direct-list music and videos using blockchain technology. In 2022, has the utility and price of NFTs reached their peak?
Defi had barely been born prior to the 2018 crash, and by November 2021 over $300 billion had been locked into decentralized protocols. Considering yields on stablecoins in DeFi are consistently 5% APY or more, the .01% yield received in your savings account starts to look pretty silly. In 2022, has the utility and total value locked in DeFi reached its peak?
The Richness of Competition
As Americans, we celebrate innovation and competition with a high value placed on meritocracy, where the best and brightest almost always win. Each market cycle weeds out the poser, the unfit, the cheater, and the weak. When the dust settles, the boldest and brightest always remain. This goes for the investor, and for the token. A few tokens have proved their worth over and over with a 90% drawdown almost seen as a rite of passage and part of the journey toward new heights. For example ETH, the token powering the Ethereum blockchain, traded at $80 in 2019 before reaching almost $5,000 in November 2021. Now it trades at $2,000, and the fundamentals haven’t changed. This competition is only mounting as more and more people get involved in the market, furthering innovation and expected growth in the future.
Volatility is the norm in crypto, and even though it looks scary at times, the rapidly changing price is what makes crypto so exciting. The market, and the innovations of the future give anyone the chance to chase that 100x return and come out wealthier than you could ever imagine.
If you are looking for a time to get into the market, this might be your season.
This content is provided for entertainment purposes only and not financial advice. Please do your own research prior to investing in the market.