The capitalization of the cryptocurrency market has decreased by more than $400 billion, and the future of the crypto sphere is in doubt. The price of bitcoin is also falling. The second-largest cryptocurrency and main altcoin, Ethereum, also fell and is now trading at just around $1,300. It is one of the main crypto losers in October according to buidlbee. What is happening in the crypto market?
Is crypto dying?
No, but now the cryptocurrency market is in a typical "bearish trend". During this period, existing companies - market representatives are tested by time and resources, scam projects are eliminated, and investors are waiting for time to enter the market at low prices. Such periods have already occurred in the market several times: in 2014, the price of bitcoin fell by 86%, from $1200 to $200. In 2018, the price of digital gold fell from $20,000 to $3,500. Two years ago, in March 2020, due to a corona dump, the price of bitcoin fell from $9,000 to $3,500. At the same time, professional traders and long-term investors managed to defend their positions and prepare for the recovery of the market, despite the statements of skeptics about the death of the cryptocurrency industry. There is a good opportunity for investors to enter the market and diversify their traditional portfolios. They should be prepared for high volatility and constant price fluctuations.
What to do?
At this time, the main thing is not to panic, invest the money that you are ready to lose, and not resort to using borrowed funds. Most of the time, you just have to wait. Throughout the history of the development of the crypto market, all negative scenarios were once replaced by positive ones.
The main thing is to avoid “falling knives”, those cryptocurrencies that are rapidly going to the bottom. A striking example is the UST stablecoin and the Luna cryptocurrency. In addition, this time can be used to explore alternative opportunities for making money on cryptocurrencies, such as staking, farming, and other types of passive income. It is noteworthy that the recent collapse associated with the stablecoin of the Terra project forced the issue of the early regulation of the crypto market to be raised again at the G7 level. The problem with this industry is that many projects are launched without well-developed business models. Even if the project was not a scam initially, various factors with such a frivolous approach can easily destabilize it to the point of collapse, and, of course, this affects the market as a whole even if the project was well promoted.
So what's the reason?
The fact is that since the beginning of the pandemic in the United States, several trillion dollars have been “poured” into the market: both directly into the hands of the population and through stimulus programs for the purchase of assets on the Fed’s balance sheet.
Under such conditions, all markets grew strongly, the economy grew, and unemployment fell. But in 2021, inflation intensified, and by the spring of 2022, it is at a maximum in 40 years - 8.5%. Inflation must be fought, and therefore the Fed first curtailed stimulus programs. So in March 2022, they began to raise the rate, and now the rate is at the level of 1% and will continue to rise. Moreover, from June 1, the Fed will begin to reduce its balance sheet, which now stands at about $9 trillion. Now the situation in the economy is such that it has become harder to borrow money, and the Fed will also begin to withdraw this money from the markets, reducing its balance sheet.
In addition, in connection with recent events, we can see a huge increase in energy prices and disruptions in logistics chains. In such conditions, it is much harder for the economy to grow, and markets are a reflection of the situation in the economy.
What to prepare for?
The market is cyclical, and after strong recessions, there is always equally rapid growth, when money starts pouring in everywhere. However, of all the situations that occur in the world, the "bear market" may drag on a little, but this does not mean that it is not necessary to collect an investment portfolio. By choosing strong fundamental projects in such a market, and gradually buying back small shares, you can make a good profit in a growing market. Most likely, many crypto funds and crypto projects will simply close, and we will even forget about their existence, tens of thousands of people will lose their fortunes and simply leave the market. And it is precisely such a period that will create an ideal base for collecting your crypto portfolio: fundamental projects that can survive this “bear market”. It is worth considering new directions that have appeared over the past year: NFT, and P2E. These directions are completely new for the cryptocurrency market, but, most likely, they will already remain on the market forever. However, many players will simply go for nothing to save at least something, and you can take a good strong position, in which you can already feel tangible profits on the market reversal.
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