The Big Crypto Carnage: What Does It Mean for the Future of the Industry?


By Peter Kris, CEO of Mangata Finance

Bitcoin wiped out all the gains it had made in 2021 and fell nearly 72% from its all-time high of $69,000. The de facto king of the cryptoverse nearly reached $20,000 during this test, which was its all-time high in 2017.

With Bitcoin down 70% and Ethereum down 79%, it’s pretty obvious what to expect with altcoins. They are absolutely crushed to death. The numbers speak for themselves.

99.8% of cryptocurrencies have already fallen at least 70% from their peak. At the same time, 98.8% lost 90% of their value, according to data from CoinGoLive.

Such carnage wiped out over $2 trillion from the cryptocurrency market. The worst is not yet over.

So what happened?

For starters, a pullback was expected after the insane bullish rally we saw in 2020 and 2021. This was not the first time the crypto market experienced such a crash. For example, Bitcoin and crypto have gone through such cycles three times now. After all, what goes up must come down.

Over the past few weeks, several significant incidents have rocked the crypto market. After the crash of the TerraUSD stablecoin, one of the biggest crypto lenders, Celsius, took the limelight for being on the verge of insolvency, and now the rumors surrounding the explosion of the Three Arrows Capital (3AC) fund have spooked the market and exacerbated the effects of the recession.

This goes to show that as an investor, whether small or large, proper risk management and a sound plan that is not abandoned during the bullish frenzy is extremely important for survival.

There’s more at stake

There is a lot going on in the crypto market. However, the internal dynamics of the cryptocurrency are not the only factor at play here. In fact, the macro has played a huge role since crypto prices fell in March 2020 in tandem with the stock market. Then, the response of central banks and governments to the market shock with unprecedented interest rate cuts, money printing and stimulus measures launched a multi-year bull run for stocks and crypto.

But all that money in the system has pushed up the prices of goods, with the consumer price index (CPI) hitting 8.6% in May, a 40-year high and the biggest increase in a year. on the other since December 1981.

Inflation makes everyone poorer. Now, to get inflation under control, central banks are undoing the same policies that propelled stocks and crypto to new highs in the first place. The S&P 500 is also officially in a bear market as the index falls back to the January 2021 level.

The Federal Reserve responded with an interest rate hike. This makes it more expensive for banks to borrow from the Central Bank, which in turn charges customers more to borrow money, resulting in less money flowing into the economy.

Amidst these macroeconomic shifts, the crypto market cannot be expected to thrive with declining personal savings and rising inflation. Investors are now rushing for cash safety, short of risky assets like stocks and crypto. Risky assets tend to have high upside risk as well as high downside risk.

As we have seen, crypto prices are not immune to Fed policy, and the market simply follows the “Don’t fight the Fed” mantra. And this has the crypto crash mirroring stocks.

What about the future?

This crypto carnage has spooked investors, and several are cutting their losses and exiting the space. With so much going on, many have also started to question their decision to enter space in the first place.

Crashes in the crypto space are not uncommon, but if this is your first crypto market downturn, it can be scary. The market has been declared dead several times in the past – 2018, 2015 and 2013, only to come back stronger each time.

But, of course, with all this gloom, many have started to wonder if there is still hope for the cryptocurrency industry. The thing is, interest in crypto is still strong.

Several surveys this month show that investors, wealth managers, and hedge funds are still interested in crypto and considering getting involved in the sector.

The most important thing is that, like the internet before it, crypto innovation continues regardless of price movements.

Over the past year, Bitcoin has gained worldwide adoption and is now owned by institutions, businesses, countries, and millions of individuals. DeFi lays the foundation for a peer-to-peer financial system with no single control. NFTs, on the other hand, are taking the crypto mainstream and leading to the birth of billion-dollar industries in art and games. As such, now is simply the time to focus on building.

At Mangata Finance, we are working to remove barriers to mass adoption of crypto. The idea is to prepare the space for real-world applications, and for this we are building a chain of DEX applications that prevents VRM, reduces costs for users and brings unparalleled efficiency.

What can be done?

While the future may look bleak right now after so much suffering and loss, there are opportunities for those who prepare for the long haul. After all, the ethos of the industry is stronger than ever, with the heart of cryptocurrency resting on decentralization, disintermediation, and direct property rights.

With all the speculation and exorbitant valuations dropping, now would be a great time to start slowly accumulating coins, especially for those without cryptocurrency exposure and waiting for the next bull run.

The high volatility inherent in crypto tends to scare off investors, but this is not a bug but rather a feature of the market. Not to mention that despite its high volatility, the industry has survived and grown tremendously over the past decade while making many millionaires along the way.

Throughout these cycles, global crypto market capitalization, developer activity, user adoption, and social media activity have only increased.

So, is “buying the dip” the right step here?

While low prices are a lucrative opportunity to buy coins at low prices, prices may very well continue to fall even further. The key is always to have dry powder to deploy when the trend reversal looks sustainable and to choose coins to add to your portfolio wisely. After all, not every crypto asset will be able to survive the bear fight.

Overall, the fear has not subsided yet. Thus, it is best to prepare for the worst while focusing on surviving the bear market. And remember that due diligence is mandatory.

About the Author:

Peter Kris is the CEO of Mangata Finance, a secure and community-driven decentralized commerce for Polkadot and Ethereum. Peter was previously CEO of European development studio Block Unison and has worked in crypto since 2012.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


nasdaq

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.
Back to top button