There is no denying we are in the midst of a bear market, not only are cryptocurrency prices at significantly lower prices than the highs experienced last year but the stock market too. While a bull and bear market are a natural part of the economic cycles, we set out to find out what plunged us into this mess and will the cryptocurrency market recover?
Dropping from its record high of $68,789.63 achieved in November of last year, the Bitcoin price is now trading around the $20,000 region. After climbing up to $22,000 on Friday, the biggest cryptocurrency has settled on $20,540 at the time of writing. The market took a beating following the demise of two cryptocurrencies alongside global struggles caused by the war and rising inflation.
It’s not just Bitcoin taking a beating, Ethereum and other major cryptocurrencies have also seen substantial drops in price. Dropping from a high of $4812.09 in November 2021, Ethereum is now trading at $1,146.99, also down over 70%. While crypto enthusiasts have seen worse, the market slumps are always a cause for concern.
What Caused The Crypto Market Crash?
Unfortunately, a number of negative factors took place in a short space of time resulting in a crash across the digital assets market, and other markets around the world too. The most prominent to the crypto industry was the demise of TerraUSD and Celcius.
TerraUSD was a stablecoin issued by the blockchain platform Terra. Terra used its LUNA coin to maintain the $1 peg of the algorithmic stablecoin. When the TerraUSD price became unstable, investors took their money out of LUNA and caused both cryptocurrencies to implode. While Terra made attempts to recover this, the majority of investors had lost large sums of money.
Shortly after this (some believe it to be as a result of this), the crypto lending platform, Celsius halted withdrawals, transfers, and swaps in an attempt to stabilise liquidity. This caused an even greater wave of concern over the platform’s liquidity and ultimately cryptocurrency prices. As investors rushed to pull out and protect assets, the cryptocurrency went from trading at $4 in January this year, to $0.80 today, resulting in a second crypto crash in a short period of time.
On top of this market uncertainty, the war in Ukraine is sending the prices of everyday goods soaring, causing many investors to seek less risky assets for investment. The Federal Reserve's decision to increase inflation rates furthered this sentiment, as seen by the price drop across the tech stock market and stock markets around the world.
Will The Crypto Markets Recover?
This isn’t the first time we’ve seen Bitcoin, or the cryptocurrency market as a whole, crash. Each time the leading cryptocurrency has climbed its way back to new highs, never overnight. While the sentiment is moody, this too will change and Bitcoin and other cryptocurrencies will see a price increase again.
To reiterate this point, crypto adoption is at an all-time high, while institutional investors (even El Salvador) are buying the dip and using the decreased prices to increase their holdings. While the market situation is unlikely to change overnight, the prospects for future growth are definitely around.
Last month, accounting firm PWC published its fourth annual global crypto hedge fund report, stating that while the overall crypto market was quite bearish, managers remained extremely bullish on BTC”. 42% of which predicted that Bitcoin will close the year at $75,000 - $100,000 and 35% believed the price to reach over $50,000.
The author of Cryptocurrency Investing for Dummies, Kiana Danial, stated that “What I expect from Bitcoin is volatility short-term and growth long-term”.
What To Do In The Cryptocurrency Market Crash
While we can’t fast forward to the prices the PWC managers mentioned above, there are other things to do before then. If you are in a position to do so, buying the dip is often a popular strategy among investors. Investors opt to leverage these periods of extreme volatility, buying low and then selling when the prices increase.
Alternatively, you can take the market’s downtime to rework strategies and focus on how you can go about achieving new investment goals.
The golden rule of investing is to never invest more than you’re willing to lose. If you’ve lived by this rule (and don’t rely on the funds you’ve used to invest in cryptocurrency), leave your crypto investments as they are and allow them to return to their original value when the markets start turning. If you take your funds out of crypto, you will experience significant losses.
Is It Too Late To Enter The Crypto Market?
Quite the contrary. Now is an excellent time to enter the market as cryptocurrencies are selling below their value. According to the Fear and Greed index, the market is currently in a state of extreme fear. In the past, this has proven to be a lucrative opportunity in which to invest in Bitcoin and other coins.
As prices plummet, now is an even better time to buy crypto than it was a week ago. With the original cryptocurrency (many cryptocurrencies) down almost 10% from last week, now is a great time to take advantage of the market's volatility.
As the crypto market follows traditional economic cycles, many experts and market analysts have concluded that while we might be in a bear market now, this too will change and the market will take a turn.
In conclusion: will crypto recover? The short answer is probably, as it's proved time and time again, the market has recovered.
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