There are good reasons for fear. Bear markets have previously seen declines of over 80%. While bitcoin (BTC) maximizers can make sense, altcoin speculators know that manipulative values can mean near (or complete) nullification.
Regardless of human investment philosophy, in risk-free environments, participation escapes from space in a hurry. Perhaps our cleaner would see a silver lining in destruction that would clean the forest floor with weeds, making the strongest projects a success. But there is no doubt that many seedlings would have lost a great deal of height themselves if given the chance.
Investment and interest in the digital asset space is water and sunlight for the fertile soil of ideas and entrepreneurship. Less heavy market reductions are best served; a garden is better than a desert.
A Brief History of Cryptocurrency Bear Markets
To solve a problem, you must first understand its catalyst. Bitcoin and all its digital assets have survived on a number of bear markets since their inception. By some accounts, depending on everyone ‘s definition, we are currently number five.
The first half of 2012 was marked by regulatory uncertainty that led to the closure of TradeHill, the second largest bitcoin exchange. The Bitcoinica and Linode hacks followed this shutdown, resulting in the loss of thousands of bitcoins and a 40% downgrade of the market. . hacks, regulatory fears, and failures of the Bitcoin Savings and Trust Ponzi scheme put the price down another 37% ¹
Enthusiasm for the new digital currency did not last long, as BTC returned to a balance of around $ 120 for most of the following year, before rising to over $ 1,100 in the last quarter of 2013. equally significant was the seizure of the DEA on the Silk Road, a ban on Chinese central banks, and the scandal surrounding the closure of Mt. Gox market extends into a downturn extending 415 days viciously. This phase lasted until early 2015, with the price falling by just 17% from previous market peaks.¹
From there, growth was steady until mid – 2017, when market enthusiasm and rage plunged the price of bitcoin into the stratospheres, peaking in December at nearly $ 20,000. Due to profit taking, additional hacks and rumors from countries that banned the asset again, the market declined and BTC remained in the doldrums for over a year. In 2019 there was a promised rise to close to $ 14,000 and it was well over $ 10,000 until BTC fell below $ 4,000 in March 2020 due to pandemic fears. It took a whopping 1,089 days – almost three full years – for the crypto market to return to its peak in 2017.².
However, as many specialists have said, the ticket printer has stopped. Expanded global monetary policy and fears of fiat inflation have prompted an unprecedented rise in asset values.
Bitcoin and the cryptocurrency market as a whole have reached new highs, peaking at nearly $ 69,000 per BTC and over $ 3 trillion in total market cap for the asset class at the end of 2021.
Since June 20, pandemic cash has been declining. Central banks are raising rates in response to anxious inflation, and the large crypto market is carrying a relatively small total investment of $ 845 billion. shorter, which suits a more mature. market. There is no doubt that this is mainly due to the comprehensiveness and speculative mania around high – risk start – ups that account for about 50-60% of the total digital market capitalization.
However, altcoins are not entirely to blame. The price of bitcoin fell 65% with the 2018 crash ⁴ The growth and uptake of cryptocurrencies has led to regulatory alarms in many countries and questions about the dominance of national currencies have followed.
How to mitigate market risk?
Therefore, it is clear that this excessive volatility is underlying risk. And we are in a risk – free environment. As a result, our young and fragile garden will first be among the more deeply rooted asset convention classes.
Portfolio managers are well aware of this and are required to balance the share of cryptocurrency investments with a larger share of safe assets. Both retail and professional investors often abandon their portfolios at the first sign of the downturn, returning to traditional markets or cash. This reactionary strategy is seen as a critical evil, often at the expense of short-term capital gains tax, with the risk of losing large, unpredictable reversals, which prefer catastrophic and prolonged declines in the encrypted winter.
Should it be so?
How can an asset class so driven by speculative promise separate itself from risk enough to keep interest and investment in the worst case? Bitcoin-heavy cryptocurrency wallets work best because they include a higher percentage of a less volatile asset than the top assets. However, with a correlation of over 0.90 between bitcoin and the altcoin market, having the dominant crypto currency often acts as a barrier to smaller assets caught in the same storm.
Many people take refuge in stables in times of crisis, but, as the recent Terra crisis has shown, they are essentially at greater risk than their fiat currency equivalents. In addition, securities-linked tokens are subject to the same concerns as any other digital asset: trust – whether in a market or an organizational entity – regulatory uncertainty and technological vulnerabilities.
No, secure asset signage will not provide the stable yang for the volatile one of the crypto market. When fear is at its peak, an inverse price relationship, not just neutrality, must be achieved to sustain cryptocurrency investment and take a return that justifies this inherent risk.
For those who want and can, the inclusion of reverse exchange traded funds (ETFs) offered by BetaPro and Proshares offers coverage. However, like short positions, these solutions are less likely to support the average investor during the shaving market.
In addition, increasingly regulated and compliant centralized exchanges are increasingly making leverage and crypto derivatives inaccessible by many in larger retail markets.⁵
Decentralized exchanges (DEXs) are subject to anonymity restrictions and centralized exchanges have largely required the proposed solutions to shorten these mechanisms for cooperating. Furthermore, these two solutions do not, from a functional point of view, directly preserve value in the cryptocurrency market.
Do cryptocurrencies have enough safe havens?
The solution to the huge investment exodus in the cryptocurrency bear market must be found in the assets themselves, not their derivatives. It may be impossible, in the medium term, to escape the inherent risks mentioned above. However, regulatory clarification is promised and debated worldwide. Centralization and technical risks are being mitigated by decentralized autonomous strategies and the employment of an increasingly prudent crypto-currency investor.
Through extensive testing and testing, cryptocurrency entrepreneurs will continue to emerge with real solutions. Blockchain technology applications that gain substantial acceptance in low-defense industries, such as healthcare, utilities, and the purchase or production of basic consumer goods, would provide an alternative to leakage. Such development should be encouraged in these uncertain times. On the contrary, according to market wisdom, these uncertain times should stimulate this development.
However, ingenuity should not be limited to imagining the weak solutions of ordinary markets. This is a new world with new rules and possibilities. After all, it is possible to establish reverse mechanisms that triggered programming.
Synthetix’s Reverse Synths are intended for this, but the protocol sets a price floor and a price cap, in which case the exchange rate is frozen and can only be traded on the company platform. The real solutions shall be widely accessible, geographically and conceptually. Rather than providing a dry place to weather the storm of market downturn, crypto solutions must deliver a return that justifies the risk that remains an integral part of our evolving asset class.
Is there a silver lining in this bear market? Will cryptocurrency winter survivors emerge in a market that is more favorable for implementation and acceptance than speculation? Healthy pruning may be just what our young garden needs; a prolonged drought is certainly not necessary. They are just falling markets and, with the clever application of blockchain technology, we hope that it is a solvable problem.
Warning. Cointelegraph does not endorse any content or product on this page. While we aim to provide you with all the important information we have been able to obtain, readers should do their own research before taking any business – related action and take full responsibility for their decisions. and this section may not be construed as investment advice.
Trevor is a technology consultant, entrepreneur and director of Positron Market Instruments LLC. He has advised business planning teams in the United States, Canada and Europe and believes that blockchain technology promises a more efficient, equitable and equitable future.
¹ A Brief History of Bitcoin Bear Markets with Mosaic – Medium
² Total Cryptocurrency Market Cap (Ticker: CRYPTOCAP): Calculated by TradingView
³ Travers, Garth (July 19, 2019). “Syntheses are reversed”
⁴ Choudhury, Saheli Roy (January 11, 2018). “South Korea rejects the idea that a ban on cryptocurrency trading is imminent”
⁵ Newbery, Emma (August 3, 2021). “Why aren’t there so many cryptocurrency exchanges available in the United States?”