Cryptocurrency

Here’s how the cryptocurrency market can overcome its macroeconomic woes

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Crypto investors have been walking a tightrope this year, which appears to be the longest bear cycle in crypto history. This anxiety may seem worn-out to crypto veterans, but has it entered entirely new territory this year?

First, let’s establish a good reference point by revisiting past bear cycles revealed through Bitcoin’s price drop.

Investigating Bitcoin’s Bear Road

At 13 years and 8 months, Bitcoin enters puberty. Until February 2017, Bitcoin accounted for 95% of the cryptocurrency market capitalization, but as of September 2022, it has fallen to 40%. So, with 62% of the total crypto market presence, Bitcoin completely dominates the scene.

This may change as Ethereum completes its transition from Proof of Work to Proof of Stake. But even with less than half the dominance, Bitcoin is still the dominant cryptocurrency. But at the same time, the entire cryptocurrency market is moving with Bitcoin.

For this reason, it is important to check how long the previous bearish cycle lasted. Note that to constitute a ‘bear market’ in the traditional sense, an asset must fall by at least -20% followed by very negative market sentiment.

  1. In June 2011, Bitcoin experienced its first bear market, crashing from $32 to $2.
    Duration: 163 days with -93% reduction.
  2. In November 2013, Bitcoin broke the $1,000 milestone for the first time and crashed a second time when it fell to $230. Duration: 410 days with -86% reduction.
  3. Recovering from a second bear cycle in January 2017, Bitcoin climbed to $20,000 before crashing to $3.2,000 in December 2018. Duration: 411 days with -82% decrease.
  4. Bitcoin hits $63,000 in April 2021 after regaining the previous $20,000 milestone. Shortly thereafter, Bitcoin continued his three-month decline to $29,000. Duration: -54% drop for 90 days.
  5. Bitcoin, which reached ATH at $68.7k in November 2021, has dipped below $20k several times in 2022 for the first time since November 2020. Duration: Ongoing, but so far -72% decrease over 309 days.

There were monthly/weekly meetings, but they were short-lived. Typically, a traditional stock market bear market 289 days.

However, not only has the cryptocurrency market been a fraction of the traditional stock market timeline, but it also deals with new digital assets. Therefore, forecasting the end of the 5th bear market should take into account its main factors.

What is driving the current crypto bear market?

Luckily, it is very clear why the cryptocurrency market cap will shrink by -53% in 2022. It’s all about managing the Federal Reserve’s liquidity pool. Since the pandemic-induced slowdown that began in March 2020, the Fed has pushed the economy to his $5 trillion mark. This is the largest exciting increase in the dollar’s history.

While this liquidity overflow seeped into cryptocurrencies, DeFi, and NFTs, the ugly side began to rear its ugly head – inflation. The dual goal stated by the Federal Reserve is to keep both inflation and unemployment low.Consumer Price Index (CPI) 8.5% in Marchthe Federal Reserve used the Federal Funds Interest Rate Tool to make borrowing more expensive.

The Fed’s modest rate hike in March was only 25 bps. However, both stocks and cryptocurrencies went into a downward spiral with hints that he doubled from April to May. June and he added two more 75 bps rate hikes in July and the crypto market continued to collapse, at which point he was at one support level.

There are lessons worth learning here about the nature of digital assets, especially Bitcoin. People may speak as if Bitcoin did it. But after all, Bitcoin is just a platform for human input.

And the human response aligns with the biggest movers, the more capitalized stock market. The stock market, in turn, has an addictive relationship with the Fed because of its cheap borrowing supply. Furthermore, Bitcoin itself is not a hedge against inflation and not a hedge against dollar demand.

When the Federal Reserve started turning the dollar’s liquidity tap, the value of the dollar increased because other countries depended on it. Therefore, other countries will have to buy more dollars against the devaluation of their own currencies. this is, Collapse of Sri Lanka When foreign exchange reserves are depleted.

Moreover, after Europe imposed sanctions on Russia, Russia plunged into a severe energy crisis and the euro collapsed under the dollar for the first time in 20 years. Bitcoin currency flows sank to multi-year lows as a reflection of this.

As a result, the supply of dollars increased and inflation soared, but its international demand was relentless. Bitcoin, the pioneer of the cryptocurrency market, is clearly ill-prepared to deal with a strong dollar despite inflation.

Room for optimism in emerging markets

The crypto market may appear to be at the mercy of the Federal Reserve, especially in terms of how central bank actions affect the stock market and the dollar. It May Look Like The Federal Reserve Has Already Reset The Crypto Market. Chainalysis Recent Reports The grassroots adoption index is still ahead of the 2020 summer bull market in terms of global cryptocurrency adoption across 154 countries.

The data also suggests that many large investors are unaware of their losses. This has prevented the cryptocurrency market from breaking down further price support. On the statutory inflation front, the news is even better. Investors most likely to buy cryptocurrencies come from countries hit by a strong dollar.

But much work needs to be done in the education sector for the next wave of crypto investors to free the market from bearish dominance. A Gemini survey respondent, on average, expects twice as many educational resources as a friend recommends.

The most common concerns are custody security, how to use/buy cryptocurrencies, trust, and lack of government support. Such concerns can be resolved through education. Similarly, volatility concerns are self-resolved by increased hiring.

Regulatory clarity

In addition to education, more than a third of Gemini’s crypto-interested respondents (who do not yet own one but intend to own one) said regulation was a major concern. This includes tax treatment and classifying digital assets as either commodities or securities.

The Securities and Exchange Commission is taking advantage of the regulatory vacuum in the United States to implement its “regulation by enforcement” policy. Meanwhile, SEC Chairman Gary Gensler has hinted several times that only Bitcoin and Ethereum should be considered commodities, easing the CFTC’s oversight burden.

“Of the approximately 10,000 tokens in the cryptocurrency market, I believe the majority are securities. Offerings and sales of these thousands of crypto-security tokens are covered under securities law.”

Gary Gensler at the Practicing Law Institute’s SEC Speaks Conference

Similarly, the fall of Terra (LUNA) could give legislators the ammunition they need to impose tighter regulations on digital assets. this is, FATF Guidelines, recommends that all crypto transactions be traceable and reportable. Specifically, from non-custodial wallets to centralized exchanges.

Whether these measures are positive or negative, the regulatory clarity itself will remove a major impediment to global crypto adoption. Lack of government support” is removed. Given President Biden’s March executive order on the “responsible development” of digital assets, 2023 is likely to be a decisive year for crypto regulation.

Once the regulations are clear, the conditions are already in place for widespread adoption. BlackRock, the world’s largest asset manager with $9.4 trillion in assets, has chosen his Coinbase as the cryptocurrency interface for hundreds of potential ETFs.we already know that Bitcoin ETFs are growing in popularity Because they leave detention in the hands of the agency.

Play-to-Earn (P2E) games and NFTs

P2E games and NFTs are closely related. In fact, blockchain games may be the biggest digital asset driver of them all. According to a Chainalysis report, Vietnam ranks first in grassroots cryptocurrency adoption.

this is no accidentsVietnam, and specifically Ho Chi Minh City, is home to Sky Mavis, the team behind Axie Infinity. This tactical, his NFT-powered game broke all earnings records and set the stage where no other blockchain player has yet emerged. Vietnam alone has turned the country into his hub for cryptocurrency startups.many Region of the Philippines We are also seeing a similar adoption of blockchain games.

This trend is consistent with investments in Q2 2022. 59% of all VC-funded projects. In August, social king Meta integrated his Instagram NFT feature in 100 countries. With a better set up of digital asset infrastructure, you’d be hard-pressed to find a better one.

Speaking of infrastructure, Ethereum is another infrastructure that is spearheading the entire DeFi/NFT ecosystem. After the merge, Ethereum remains slow until the surge, but it has a layer 2 scalability solution, Polygon. Sidechain already has a wide range of business partners, including DraftKings, YugaLabs, Disney, Stripe, Reddit, Meta, Starbucks, and more.

Zoom out for better crypto view

The Fed could act as the world’s central bank. Its tools flood or deplete the economy with liquidity, affecting the cost of living and doing business. However, this is just signaling information. Real-world assets are available to start stirring anew.

In the crypto world, these assets include unabated VC-backed projects, corporate blockchain integrations, and mergers of Web2 and Web3 platforms (Twitter, Reddit, Meta, etc.). Negative perceptions of regulation can turn positive once the fog of uncertainty clears.

For these reasons, we come full circle to Warren Buffett’s investment axiom, “Be fearful when others are greedy, and be greedy when others are fearful.”

Guest post by Shane Neagle of The Tokenist

Shane has been an active advocate for the movement towards decentralized finance since 2015. He has written hundreds of articles related to developments surrounding digital securities, including the integration of traditional financial securities with distributed ledger technology (DLT). He remains fascinated by the growing impact of technology on the economy and everyday life.

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