The year has been very bad for cryptocurrencies. If you were a long-term investor and the stock was financially stable, this would be a terrific moment to buy. It is challenging to predict whether the bitcoin market will ever rebound because it behaves differently from the stock market.
Why bitcoin is more difficult to forecast than the stock market
There isn’t much of a history with crypto. The first of the modern generation of digital currencies, Bitcoin, was introduced in 2009. For example, the New York Stock Exchange was founded in 1792. While previous stock market trends are simple to review, there isn’t enough information available about the behavior of cryptocurrencies to do so.
The marketplaces for cryptocurrencies are also less regulated than conventional markets, including the stock market. While organizations like the Securities and Exchange Commission and FINRA closely monitor investment firms operating in the stock market, cryptocurrency companies are subject to much less regulation. This increases the risk to investors, including the possibility of fraud and scams. And finally, there is no big government or central bank supporting cryptocurrencies. Most cryptocurrencies, unlike dollars and euros, derive their value from the communities in which they are used. They are challenging to value, and few are supported by assets denominated in dollars.
Contrary to stock investments, there are no linked firm KPIs that would fully explain if your cryptocurrency investment is “good” or not. There are numerous ways to assess a company, but analysts find it difficult to do the same with digital assets like bitcoin and ether.
An Overview of Crypto Winters
The phrase “crypto winter” is comparable to a stock market bear market. A prolonged period of low asset prices compared to recent peaks is known as a crypto winter. Cryptocurrency prices are currently substantially lower than highs reached in 2021. We have relatively little information about crypto winters because there have only been two such occurrences in the history of bitcoin. With stocks, it’s simple to chart trends and search for recurrent ups and downs; with cryptocurrencies, it can be more difficult.
The 2018 Crypto Crash
Bitcoin in particular had a significant increase in value in 2017. It was less than $1,000 in January, but by December, it had increased to about $20,000. Although many people began paying attention to it for the first time following this spectacular growth, this wasn’t because it suddenly became more popular or the demand increased. Price fluctuations may not have always been as apparent as they first appeared since the price surge may have been influenced in part by market manipulation by wealthy investors. A crypto whale, or person with a sizable wallet, purportedly participated in two sorts of manipulation:
1. Spoofing: when a bid for a false cryptocurrency is submitted to artificially increase demand before being withdrawn once the price has increased.
2. Wash trading: it appears that the bitcoin is moving hands and in demand at a greater price point than it actually is when someone buys and sells from themselves.
The Justice Department launched an investigation because the conduct was so serious. Prices fell in stops and starts after the inflated price gains until November 2018, when the official crypto winter of 2018 began. When the cost of crypto assets fell below what the majority of holders paid for them, the bear market formally began. For a total of around four and a half months, there was a bear market. Cryptocurrency exited its bear market at the beginning of April 2019, but it didn’t really take off again until the epidemic struck a year later, in 2020.
Present-day Crypto Winter
The pandemic has caused diverse reactions in everyone, but at first it was unsettling for everyone. Many people lost faith in their governments and leaders and turned to cryptocurrency as an investment because they thought it was a “safer” option than the infrastructure they saw crumbling all around them.
The bull run continued over the following year. However, in the background, Russia and China, two of the largest crypto mining nations, began enforcing harsher regulations against energy-intensive mining operations in 2021. The global inflation spiked at the same time as there were whispers that the American Federal Reserve will shortly increase interest rates. Due to these factors, many investors withdrew from the cryptocurrency markets.
The decline from the top market price started in November 2021, according to digital asset management Grayscale Insights, although the genuine crypto winter, or bear market, didn’t start until June 13, 2022.
What transpires following a Crypto Winter?
Cryptocurrency prices don’t necessarily return to previous highs, not even close, just because the market emerges from a bear phase. Investors had to wait nearly a year for prices to rise steadily after the previous crypto winter. It took until the beginning of 2021 for bitcoin to reach its 2017 peak. From there, it quickly rose while briefly gaining in value. However, according to a model where crypto winter and boom cycles happen roughly every four years, it might not happen until 2025 or even 2026 before values reach their November 2021 highs.
If the four-year pattern continues, now might be the best moment to purchase additional cryptocurrencies. But because cryptocurrencies are dangerous and there’s no assurance they will ever recover, that is a very risky choice that is best left to long-term investors alone.
Will bitcoin ever recoup?
Cryptocurrency’s current downward trajectory will probably be corrected, but there’s also a good risk it might collapse to zero. For instance, China’s restrictions on cryptocurrencies could be the first of many as environmentalists and governments battle against the industry’s high electricity consumption. Although only tiny El Salvador has proclaimed bitcoin its official currency, other countries are exploring tight controls and limitations. To protect consumers and the environment, government officials claim that more rules are needed regarding digital assets.
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