After massive increases across the board in the middle of 2021, the cryptocurrency market is beginning to slow down. This has some investors concerned that another bear market is possible, but some signs point to the fact that there may be a few more months of profitability left before the next big crypto crash.
The most recent cryptocurrency bull run started about one year ago in November 2020. Since then, the total cryptocurrency market capitalization has increased from $500 billion to over $3 trillion at its peak about a week ago.
Over the last year, there has been lots of mainstream coverage of cryptocurrencies, and several notable announcements, releases, and general good news that has led to a sustained bull market. The dogecoin and NFT hype, El Salvador’s acceptance of Bitcoin as legal tender, and Crypto.com and Coinbase’s massive marketing campaigns are only a few of the big stories that have dominated the headlines over the past year and have helped to make blockchain and cryptocurrencies more relevant than ever.
However, just like with any other market, there is bound to be a correction which could considerably shrink some of the market’s gains over the past years. Some investors speculate that this week’s small correction, where the market is down ten to fifteen percent, could be the beginning of a larger bear market similar to that of 2018–2020.
Since its inception in the early 2010s, the cryptocurrency market has followed a steady four-year cycle. For one year, the prices of cryptocurrencies boom and increase dramatically to new all-time highs. Then, for the following three years, there is a market crash that results in coins losing over 50–75% of their market value, and more prominent coins like Bitcoin and Etheruem usually find support levels at their previous all-time high.This exact cycle has played out multiple times, including in 2014 and 2017. The 2018–2020 bear market also led to a 2021 bull market, which is the first step in this repetitive cycle. If this trend is to be believed, this may mean that January 2022 will be the beginning of a cryptocurrency market crash lasting for two years, just like January 2018.
On the other hand, the cryptocurrency market is much different today than it was four years ago. Now, it is more mainstream than ever, and the majority of people in developed countries have heard of Bitcoin. Additionally, large corporations and banks have been becoming more invested and interested in cryptocurrencies and blockchain technologies, which helps to legitimize the industry and reduce some of the volatility associated with the market. The larger the market grows, the more capital is needed to swing the prices, thus it is more difficult for a selloff to result in massive losses.
Additionally, marketing efforts and general adoption are helping to cement crypto’s place in society, and prove it is more than a simple fad. This can be seen in the renaming of the Staples Center, one of the world’s most prominent sports arenas, to the Crypto.com Arena. This partnership is monumental for the cryptocurrency industry, as it brings crypto to the forefront of entertainment and ensures that everyone will have exposure to the asset class at all times, even while watching a basketball game.
Furthermore, the cryptocurrency fear and greed index, which uses metrics such as volume and social media sentiment to gauge the general public’s feelings about cryptocurrencies on a scale from 0 to 100, is at a perfect neutral 50 right now. This means that the future of the market is incredibly uncertain, and nobody is convinced whether or not the bull market will continue. Typically, an index of 90 or higher means the bull market is at its peak, and a score of 10 or lower signals the end of the bear market. In prior weeks, the index hit a high of 84 and a low of 46, which may signal that there are more gains yet to come.
Even though the current state of the market appears to be uncertain, and the argument can be made that a bear market is impending, history suggests there are at least a couple more months before there might be another large crash. Even so, this crash may be less significant than prior ones, due to the newfound prominence and adoption of cryptocurrencies around the world. Even though crypto is a volatile and nascent industry, it is maturing more and more every day, and this maturity naturally leads to more positivity and less downside in the market.
By Lincoln Murr