In the past few weeks, the cryptocurrency market has been steadily declining, and today the total market value has fallen sharply by 8%. This price movement has led some to speculate that a bear market is beginning, while others remain optimistic that there are still months to be bullish. The truth may be somewhere in between, and it may be related to the comeback of COVID and the stock market panic.
In the past eight years, the cryptocurrency market has followed a four-year cycle. Normally, there will be a year-long bull market, and most cryptocurrencies will hit all-time highs. Subsequently, there was a three-year bear market, and the market value of cryptocurrencies fell by 50-75% or more. This pattern has appeared twice before, in 2014 and 2017, and it may happen again in early 2022.
At first glance, this analysis makes sense, because in the three years after 2017, the price trend was flat. Bitcoin fell to a low of around $3,000, but soared above $60,000 in 2021. If history repeats itself, as usual, then 2022 will be similar to the beginning of 2018 and become the beginning of a large-scale bear market that will last until 2025.
Although this may be a credible theory, it fails to fully capture the current state of the cryptocurrency market. Different from 2018, there will be large-scale mainstream adoption and marketing in 2021, attracting more investors to enter the cryptocurrency field, and at the same time, the public’s understanding of NFT and Dogecoin is also increasing. Some people believe that this new adoption will help support the cryptocurrency market, so history will not repeat itself and cryptocurrencies will continue to climb. In addition, whenever a pattern is found in the investment world, many people follow the trend to make money. However, this type of investment rarely works because once the investment model is discovered and used, it is often not repeated. This optimistic view can help explain why the recent price drop was only a drop, and why Bitcoin is still expected to reach $100,000 in the short term.
The truth about the current state of the market may be somewhere between these two views. Although a model will not be repeated in the financial sector, it is also true that the perception of an impending bear market may scare investors off and cause prices to fall. On the other hand, the development, venture capital, and adoption of the cryptocurrency field will also help ensure that the cryptocurrency market remains alive, even during periods of negative sentiment.
The recent price drop can be attributed to the global spread of COVID-19 (especially the Omicron variant). This highly contagious variant has led to a significant increase in the use of infected persons and intensive care unit beds, leading to labor shortages. Due to all these uncertainties around the world, both the stock market and the cryptocurrency market have been hit as investors turn to safer assets and are unwilling to take high risks.
If it turns out that Omicron is not a major issue, and the world returns to normal soon, this decline may end soon as investors regain confidence. However, if the labor shortage continues and it is even possible to implement the stay-at-home order again, investors will continue to lose confidence in the market and prices will continue to fall.
Although it is impossible to predict exactly what the market will do, informed and well-researched decisions can help prevent downside risks. Any cryptocurrency investor should only invest in assets within their risk tolerance range, and must accept the high volatility required to achieve the huge returns they ultimately want.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/are-we-now-at-the-beginning-of-a-crypto-bear-market/
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