We Go Down Together, Up Separately - How Crypto Winters Work
Having been through a few crypto bear markets before, weeks like these ones don't really come across as a surprise anymore. Yes, crypto goes up a lot, but down a lot, too. It's part of the process. But bear and "winter" markets are actually the best time to do research since the grifters get quiet and there's a lot less noise out there to deal with.
The chart above shows the diverging patterns of returns of various coins out there over the last few months. The idea of everything crypto being pegged to Bitcoin or Ethereum has largely been debunked -- which is also a sign of the market maturing as people become more familiar with the functions of different cryptocurrencies out there. Although this week we saw a uniform drop in pretty much everything -- including the stock market. Possible explanations include: Federal Reserve suggesting interest rate hikes signals the end of "easy money", Russia's ban on crypto trading and mining, hints at COVID-related lockdowns lifting, etc.
Downturns like these are called "corrections" because it's a way for the market to flush out projects that were never viable to begin with, or were running purely on marketing hype to keep pricing going high. That money gets re-circulated back into the system eventually, after a cycle or two to recuperate their losses. The idea is that after having sold, the money will go into projects that are more substantial, after a period of reflection. (Why it's important to have enough patience to at least wait a cycle or two -- which are usually measured in months, not days or weeks.)
Crypto investors need to be particularly careful because right now it is very trendy to be an "online marketer" since the bar of entry for said roles is very low -- and there's an outsized amount of people who have gotten into that line of work since lockdowns have went into effect. But in the end, having a product that solves a real problem is what gives coins their staying power -- as it stands now, the most obvious products (not services) of the crypto markets are:
- NFTs
- Metaverse Plots
- Decentralized Storage (TBD)
Time will tell where things will go, but given the trends of the last year or so, the idea that coins will recover together in a uniform manner (as it's done in the past) seems unlikely. It's a good time to DYOR, if anything, imo.
The chart above shows the diverging patterns of returns of various coins out there over the last few months. The idea of everything crypto being pegged to Bitcoin or Ethereum has largely been debunked -- which is also a sign of the market maturing as people become more familiar with the functions of different cryptocurrencies out there. Although this week we saw a uniform drop in pretty much everything -- including the stock market. Possible explanations include: Federal Reserve suggesting interest rate hikes signals the end of "easy money", Russia's ban on crypto trading and mining, hints at COVID-related lockdowns lifting, etc.
Downturns like these are called "corrections" because it's a way for the market to flush out projects that were never viable to begin with, or were running purely on marketing hype to keep pricing going high. That money gets re-circulated back into the system eventually, after a cycle or two to recuperate their losses. The idea is that after having sold, the money will go into projects that are more substantial, after a period of reflection. (Why it's important to have enough patience to at least wait a cycle or two -- which are usually measured in months, not days or weeks.)
Crypto investors need to be particularly careful because right now it is very trendy to be an "online marketer" since the bar of entry for said roles is very low -- and there's an outsized amount of people who have gotten into that line of work since lockdowns have went into effect. But in the end, having a product that solves a real problem is what gives coins their staying power -- as it stands now, the most obvious products (not services) of the crypto markets are:
- NFTs
- Metaverse Plots
- Decentralized Storage (TBD)
Time will tell where things will go, but given the trends of the last year or so, the idea that coins will recover together in a uniform manner (as it's done in the past) seems unlikely. It's a good time to DYOR, if anything, imo.
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