Many of the most adamant crypto skeptics have been happy with the state of the market over the past six months. Even as the total crypto asset market cap has dropped from nearly $3 trillion in November 2021 to roughly $1.25 trillion in May 2022. During this same time the Bitcoin Dominance Index has started to creep up, which is a sign that market participants are looking for safer waters. Bitcoin has seen a drop below $30,000 after reaching heights of nearly $69,000 last fall.
Even so there are still plenty of reasons for long-term holders to remain optimistic. After all, this isn’t the first time Bitcoin has experienced a price drop of more than 50%. The crypto market as a whole tends to operate on a cycle of large booms and busts. However the general trend is for the busts to be less severe than their proceeding booms. Those who have long-term conviction in their crypto bets should not be panicking at this time. We are still in the very early innings of what could be a massive decade for this emerging financial technology.
Zoom Out on Bitcoin
Those worrying about the performance of the crypto market over the past six months may want to try zooming out on the charts they are viewing. Bitcoin is down more than 50% since November, but it’s also still up massively from previous boom and bust cycles. At this point, the massive run up in price to over $1,000 in late 2013 is a barely noticeable blip on the all-time bitcoin price chart. One should note that the low after the bursting of the bubble in initial coin offerings (ICOs) was still roughly three times that of the 2013 peak.
The Bitcoin price has operated on a system of roughly four-year booms and busts. The rest of the crypto market tends to follow whatever the bitcoin price is telling it to do. For now, the Bitcoin price is still 50% higher than the roughly $20,000 price point that was hit near the end of 2017. There may be some parts of the crypto ecosystem that are unable to eventually recover (more on that later), but the idea that the entire sector is going to continue this collapse and disappear entirely seems unlikely. At the very least, there is a product-market fit for a global, apolitical store of value and medium of exchange such as bitcoin.
Those who use the proper strategies when it comes to buying crypto, such as dollar cost averaging (DCA), will be less affected by these sorts of short-term price swings. Bitcoin and other crypto assets are often in reference to long-term bets. This means you should not be concerned with the short-term booms and busts. Most people who attempt daytrading, especially in the crypto market, end up losing out in the long run. It is recommended for crypto investors to purchase a set amount of their particular crypto assets. This could be on a daily, weekly, or monthly time interval. Nearly everyone who tries to time the market perfectly ends up buying high and selling low. This is due to the inability to stick to their original plan as their emotions take over.
There are thousands of crypto projects out there these days. Of course, not all of them will be able to survive this developing bear market. Think about specific sectors of the crypto industry. There are ones that could experience trouble ahead. It’s best to think of the sorts of crypto assets that weren’t around for previous bear markets.
Bitcoin and the Future
Over the past few years, there has been a lot of hype around non-fungible tokens (NFTs). Also, with Web3, meme-based dog tokens, and decentralized finance (DeFi). This is not to say that all of the crypto tokens associated with these projects will go to zero. It’s worth considering the fact that these types of tokens have not been around for very long. They could have been based around nothing more than hype and FOMO. There have also been a number of alleged Ponzi schemes, such as Hex and Safemoon. These have popped up over the past few years. The proliferation of these sorts of projects on social media should be a sign. A sign that there was a bit too much froth in the market at the time.
If we are headed for a prolonged bear market, there will still be opportunities for investments in quality projects. After all, crypto fortunes are made by those who are buying near the bottom of a bear market. However, not for those who buy at the peak of a short-term price bubble. That said, bitcoin also isn’t going away anytime soon. If you’d like to stick with a cryptocurrency that is most likely to be around the next time the crypto market takes off running.
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