We hope you're sitting down, folks, because we have some news that could be upsetting to some of you: A crypto market crash or steep correction may be coming.
In May 2021, the crypto market crashed, and Bitcoin dipped to lows of $30k. Most altcoins bled out for the better part of the weekend too, with most recording dips of over 30%. Things seem to be stabilizing, though, and in the past 24-hours, the market has gained over $200 billion.
However, with the recent crash, it is easy to fear getting into the market at this point. Interestingly, from a look at history, one notices that there is no reason to worry. A crypto market crash is part and parcel of the market and usually provides an opportunity to buy more.
Why You Don't Have To Fear A Cryptocurrency Market Crash?
1. A steep correction is always around the corner
Bitcoin is the key market mover in crypto, and whenever it corrects, the rest of the market follows it. From a look at its history, Bitcoin always tends to correct significantly after rising too fast in a short period. For context, Bitcoin has crashed sharply 15 times since it was launched. In all its retracement, the entire cryptocurrency market crashed with it.
History tells us that the key reason behind Bitcoin’s sharp drop is always a steep rally followed by bad news of any sought. It can be news of exchange hacking, government ban, or any other negative regulatory news.
One of Bitcoin’s most significant corrections was in 2012. It crashed by 56.3% after news that a Ponzi scheme had made off with 150k BTC. Another major cryptocurrency market correction occurred in 2016 when the foremost crypto crashed by 86.9%. This followed news that China had banned Bitcoin. This selloff was intensified by the Mt.Gox hack, one of the largest cryptocurrency exchanges in the world at the time.
The 2017 crash, which is the one that most retail investors can relate to, saw Bitcoin retrace by 83.6%. Again this was triggered by similar factors to those in every other cryptocurrency market correction in the past. It started with news of a crypto exchange hack, where Japanese exchange, Coincheck, lost $530 million. The crash was intensified by the news that China was cracking down on crypto exchanges.
The 2021 cryptocurrency market crash has been quite intense, too, and has seen Bitcoin drop by around 50%. Like the other corrections, it came after a sharp rally followed by negative news of China banning crypto mining and trading. This time around, there has been no major exchange hack, but negative rap about the environmental impact of Bitcoin has been a key intensifier to the selloff. The retracement has seen the entire crypto market crash from over $2.4 trillion to around $1.4 trillion.
The worst part is that even when the bottom is reached, there is always the risk of the market dropping further, before the bounce back. For instance, in the 2018 crash, Bitcoin hit bottom at around $6k. It stabilized at this level for a while before crashing further to test new lows of $3100. This bled the market even further, and the alts suffered most.
It is also noteworthy that the reasons behind a cryptocurrency market crash are never far away. At this moment, very few governments have offered any form of clarity on crypto. This leaves the space wide open to crippling regulations from pretty much anywhere in the world.
There is also the growing influence of people like Elon Musk in the space. You never know what such a person will tweet next and how it will affect the market. Similarly, you are never sure when the next big exchange will be attacked, and hundreds of millions, or even billions of dollars worth of crypto lost.
Read Also: Bitcoin Price Predictions
2. Crypto investors stand a good chance of winning long term
However, it is not all doom and gloom, and you don’t have to panic. We can give you 10 reasons why you do not have to fear a crypto market crash or correction.
The cryptocurrency market crash aside, all crypto corrections in history have been followed by a mega bull run. Anyone who has managed to ride all these corrections has emerged at a better position overall.
It goes to show that the crypto market is no different from the other financial markets. For instance, the S&P 500 has corrected a record 38 times since 1950. However, each of its corrections has been followed by new highs.
To contextualize this, one needs to look at the next high after a crash. According to data from CoinMarketCap, there have been 15 crypto crashes since the markets started. Emphasizing Bitcoin, which is the key market determinant, an exciting pattern is noticeable.
Each crash is followed by a new bull run that tests new highs. In January 2012, Bitcoin crashed to a low of $4. It was followed by a bull run that saw it test a high of $16. The next crash happened in August 2012 and saw Bitcoin crash to $7. The Bull Run that followed saw Bitcoin test a high $49. This trend has continued, and in the latest rally, Bitcoin tested a high of $64,706.
Essentially, anyone who bought one Bitcoin in 2012 and ignored all the corrections had a coin worth $64k at most recent highs. You can say the same of pretty much all altcoins since they tend to follow Bitcoin’s price movements. As long as one can hold through the selloffs, they stand to emerge net positive at the end of the day.
The idea is to have a long-term view of the market. If you strongly believe in the potential of your crypto portfolio, then cryptocurrency market corrections are an opportunity. They are an opportunity to buy more and beef up your portfolio. If historical data is anything to go by, then there is a good chance that you will build your wealth exponentially.
3. It doesn’t matter if you are a risk-taker or conservative; you can make money
Up to this point, it might feel like only conservative investors stand a chance to make money in crypto. You know, the type of person that buys Bitcoin and holds, right?
Well, going by crypto market data from inception to date, even investors that have a high affinity for risk are well-positioned to make money. Anyone who bought Bitcoin in early 2020 at $10,000 is up by 280% at current prices. They are even better off if they have been buying over the years.
Similarly, someone who took a risk in 2020 and bought Dogecoin is up by over 12000% at current prices. That doesn’t mean that Bitcoin’s 280% gains are bad. They are very impressive when compared to other asset classes. For context, the S&P 500 returns an average of 11% a year. This is quite tiny compared to a crypto-conservative investor who has been betting solely on Bitcoin.
All a risk-taking crypto investor has to do is due diligence on various projects, and they can make bank. Issues like the developer team behind the crypto, adoption, and positive news can all play a role in this. To use the analogy of the stock market, it is all about understanding the fundamentals. Anyone who did their homework on Amazon (AMZN) in the mid-2000s has been as profitable, if not more, than someone who bet on the S&P 500.
As long as you take a long-term view of the crypto market, you stand to emerge profitable, the wild market swings notwithstanding.
4. Institutional money is coming in
For the longest time, the crypto market was largely in the hands of retail investors. However, the dynamics are changing. Since 2017, there has been an increase in institutional money in crypto.
Institutional money has brought a fair share of innovations that will open up the market long term. Things like ETFs have been gaining traction all across the globe. In the U.S, the government has been slow in approving such instruments, but it is only a matter of time.
Recently, the SEC got a new chairman who has been relatively pro-crypto. This has given the likes of VanECK the boldness to file for an Ethereum ETF alongside their earlier Bitcoin ETF filing.
With institutional money pouring billions of dollars into crypto, the market is bound to keep expanding over time. It also makes the cryptocurrency market correction an opportunity to buy rather than to get afraid and flee.
To give you even more confidence to hold, data shows that institutional money has not sold in the current crypto market correction. Most of the selloff was retail money.
5. It is becoming easier to buy crypto
Before the 2017 rally, lots of people did not understand crypto. This was made even more difficult by the fact that most exchanges did not have fiat on-ramps. You had to first go through a complex process of buying Bitcoin before getting into altcoins.
Such problems are now a thing of the past. The average crypto exchange now has fiat on-ramps. You can easily open an account and deposit fiat via a credit card, wire transfer, or even buy stable coins in the P2P market.
All this points to one thing increased liquidity and stronger demand for cryptocurrencies. This is a guarantee that the market stands to become even more robust long term.
Logically, this makes corrections an opportunity to buy more and profit as market value grows over time.
6. Lots of innovations are taking place in the crypto market
Since Bitcoin came into existence in 2008, lots of innovations have happened in the industry. One of the biggest ones was the launch of Ethereum and its ERC20 standard. This opened up a whole ecosystem of smart contracts that culminated in the ICO bubble of 2017. Out of this bubble came some precious projects. Today, the market is in third-generation blockchains like Cardano that are fast, scalable, and environmentally friendly.
One of the most revolutionary innovations in blockchain at this point is DeFi. DeFi is making it possible to earn double-digit incomes passively through crypto borrowing and lending. The DeFi revolution is not just drawing retail money but seems to have captivated big money investors too. In early May, Peter Thiel, a billionaire, announced that he was backing a $10 billion exchange focused on DeFi.
All this points to a market that is expanding and with lots of opportunities for investors. You can’t see such opportunities when your mind is clouded with fear due to a short-term correction.
7. Regulations are getting better
Amid a cryptocurrency market correction like this one, it is easy to get caught up in the negative news. News like China banning crypto mining or the U.S requiring disclosure on crypto transactions can make it feel like the market will tank forever.
In reality, regulations are increasingly becoming pro-crypto. This is quite evident in places like Canada and many nations in the Far East and Southeast Asia. An excellent pointer to this is the increasingly transnational nature of crypto ETFs. A Hong Kong-based management fund recently gave its investors the ability to get some exposure to Canadian crypto ETFs.
This points to an increasingly favourable environment for the crypto market on the whole. Naturally, it means the market will keep expanding going forward.
8. Crypto is getting more press
With each crypto bubble and burst, the market is thrust into the media limelight. This means people who hitherto did not know about the market get to know about it. The current crypto market crash is probably the biggest in terms of crypto media coverage. That’s because this time, influential people are now talking about the market.
All this is bringing in new money into the space, meaning more liquidity and price stability. Such is a bullish signal, and if past cycles in crypto are anything to go by, then the next cycle could easily be bigger than the rest.
As with all previous cycles, the trick is to have a long-term view of the market. When you are aware that more people are getting into the market, market corrections become bargains to accumulate more ahead of the next cycle.
9. Adoption is on the rise
There are tons of stores where you can buy crypto today. In some places, you can even pay for your university education in crypto. The most prominent case of crypto adoption just before the crash was Tesla.
The world’s largest automaker by market capitalization had announced that it would be taking Bitcoin for payments before it made a U-turn. Elon Musk, the company’s founder, is also considering funding SpaceX’s moon mission in Dogecoin.
While this may look normal today, it wasn’t the case for a very long time. In fact, for a long time, crypto was considered a preserve of the underworld. Any mention of Bitcoin was quickly associated with drugs and other illegal stuff on the dark web.
So what does the mainstreaming of crypto payments mean? It means that long term, demand for crypto will keep rising. Therefore, ignoring the short-term price corrections, this is a pretty bullish signal for cryptocurrencies.
10. Crypto is now an alternative to conventional assets
Traditionally, gold and bonds were the hedges that investors used in times of market corrections. However, this is slowly changing. In the 2020 stock market correction, gold and bonds corrected alongside the S&P 500 and other stock indices.
This presents a peculiar scenario for investors, one where there is no clarity on what to hold on to for safety. Crypto is emerging as an alternative, and in 2020, this market outperformed both gold and stocks by a considerable margin.
It’s emergence as an alternative has seen wealthy investors start considering some level of exposure to this market. For instance, Goldman Sachs recently announced that it was considering giving investors with more than $25 million in assets some exposure to crypto.
This only means one thing, more money flowing in, and the market expanding even further long term. With such prospects, it is illogical to fear the market crash. If anything, it becomes an opportunity to buy more.
From a look at the crypto market history, it is quite clear that Bitcoin drives the market. Whichever direction it moves, altcoins follow. This may seem like a bad thing at face value, but it is actually good.
To understand why you need to look at the market dynamics of Bitcoin. BTC has a capped supply of 21 million, and with every block, mining difficulty becomes even more complex. The end result is that with every new investor, the supply of Bitcoin is shrinking relative to its demand.
Economics 101 dictates that in such a situation, the price of Bitcoin will keep rising over time. Since it pulls the altcoins market with it, every dip in price presents an opportunity to buy more.
Clearly, this is not the time to panic and start selling your crypto assets. Historical data proves that it is time to buy. Lots of good things are happening in the market too, ranging from technical progress, to adoption by institutional investors. A confluence of these factors are guarantee that in the long run, prices will go up. Just like every other market, those who buy crypto assets with the long term in mind always win.
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