The crypto market bloodbath that is currently engulfing the entire industry will likely go down in history as one of the key points to remember regardless of whether the prices recover or continue going downward.
To recap, the crypto market plummeted after a week of bad news as both Tesla CEO Elon Musk and the Chinese government threw spanners into the works of crypto miners, sending Bitcoin (BTC) all the way down to $30,000. This marked the largest-ever monthly decline in the value of BTC in monetary terms as it more than halved in value in comparison to the all-time highs of around $64,000. And where Bitcoin goes, the altcoins also tend to follow, and so they did.
Huge liquidations have occurred across the board, so much so that the total market capitalization of the cryptocurrency market has dipped from $2.5+ trillion to just under $1.5 trillion since May 12, thereby showcasing a decrease of nearly 60%.
Providing his take on the current state of the market, Galaxy Digital founder Mike Novogratz opined that as Bitcoin continues to face a high degree of volatility — thereby discovering its bottom in the process — it seems as though it will take this yet evolving market a fair amount of time to consolidate and stabilize.
Overall, in terms of what’s driving the aforementioned market turbulence, there seem to be myriad factors at play. For starters, crypto prime broker Genesis Global Trading noted that recently, many major Bitcoin sell-offs were witnessed thanks, in large part, to forced liquidations and leveraged closeouts.
Furthermore, the recent price drops can potentially also be attributed to investors migrating their investments after news broke that China had allegedly banned its citizens from gaining access to any crypto exchanges and transacting using digital currencies.
What to make of the volatility?
What’s going on with the crypto market, and where might the industry at large be headed in the near to mid-term? Joel Edgerton, chief operating officer of cryptocurrency exchange bitFlyer, told Cointelegraph he believes that a perfect storm of negative stories — such as Musk going bearish on BTC, Binance facing possible United States regulatory penalties, tax season selling, etc. — have swamped the crypto market and have generated severe fear, particularly among retail traders, adding:
“This meltdown is exacerbated by the high leverage used in unregulated exchanges. Any buying into the drops is like catching a falling knife, which moves the buyers to the sidelines to wait for a bottom. We will need to find a bottom and consolidate the price before we see stability.”
Similarly, Jack Lu, founder and CEO of interoperability-focused blockchain platform Wanchain, pointed out that with the digital asset market having grown quite steadily over the last six months or so, it seemed as though it was only a matter of time that such a correction would happen. He believes that once the industry is able to navigate this latest round of monetary turbulence, it will “recover all of its lost value and reach new highs this bull cycle.”
Konstantin Anissimov, executive director at cryptocurrency exchange CEX.IO, believes that although the reasons for this latest dip may be manifold, the market is displaying an extraordinary amount of maturity to actively shrug off any incoming bearish volatility — a trend that was lacking in previous bull runs — telling Cointelegraph:
“The industry is trying to unwind from the mining dominance China wields while retail investors are decoupling from the impacts of Elon Musk’s tweets, all in a bid to permit the free reaction of the market to the hoard of fundamental events that get revealed all the time.”
Will the market continue to grow as expected?
Another subject worth delving into, especially in light of the recent market crash, is whether or not the crypto industry will be able to expand and grow as it has over the past year or so. On the subject, Lu opined that the decentralized finance market has gained a considerable amount of traction recently, with this segment’s total value locked and the number of applications growing exponentially.
Furthermore, he also highlighted that with a growing number of blockchain interoperability solutions now making their way into this space, it seems as though the decentralized finance market will continue to grow and pique the interest of many new investors across the globe.
In addition to the DeFi sector, the crypto market has also given birth to the nonfungible token boom, which according to many experts is a space that seems primed to evolve and keep growing in the future, especially as more and more artists, musicians and content creators continue to adopt these novel digital offerings.
Lastly, it should also be pointed out that the use cases of blockchain are not only confined to cryptocurrencies, as in recent months, a number of countries including the Bahamas, Cambodia and China have all tested or launched their very own central bank-backed digital currencies. Therefore, the cryptocurrency industry is quickly moving beyond being a tool for speculative investment, as the great majority of tokens cannot be characterized as currencies or investment vehicles and, instead, could be utility tokens of various functions or collectibles.
Any reason to fear volatility?
According to Daniel Peled, co-founder and president of Orbs — a public blockchain infrastructure — the current downturn is consistent with what was seen during the past bull runs, where there were also significant downturns in the short term, as he told Cointelegraph:
“While there might be additional bearish pressure in the short run, in part because there is now going to be negative media hype, in the long run, this hype will also correct itself. The best way to insulate oneself from this hype is to stick with consistent, rational strategies such as monthly dollar-cost averaging.”
He further highlighted that investors should bear in mind the fact that the crypto market has always been volatile, and it’s important to look at fundamental indicators other than just the price of an asset to make sense of the market. “Based on the major fundamentals, including the pace of adoption of BTC, the ongoing innovation in the Ethereum ecosystem, hash rate, and inflows vs. outflows, we are still in a bull market,” he added.
Kevin Liu, co-founder of MetisDAO — a layer-two decentralized autonomous organization protocol — told Cointelegraph that much like the current volatility, the bull run of 2017 also saw multiple large corrections followed by triple-digit run-ups, basically suggesting that nothing out of the ordinary is taking place right now.
Therefore, amid all the turmoil, it stands to reason that price volatility is an expected byproduct of large price moves but that staying calm against all odds could shield away from making a bad choice. Thus, it is best if individuals make decisions that are well informed and based on the technical/fundamental data rather than hearsay or an impulse reaction.