You should be aware of some factors that have brought enormous instability to markets in recent times.
One of them is the high interest rates in the United States, which has affected the stock market not only there, but also those in Brazil and in the world as a whole, as well as the price of fixed income securities in the United States, at a pace of fall similar to that of the main stock indices.
This is not to mention the war between Russia and Ukraine, which ended a year ago a few days ago, and which is still hitting hard the prices of commodities and other consumer goods.
And, as we saw last year, the effects of these events have been heavy: falling stock exchanges, rising interest rates, devaluing fixed-income securities, properties that have been stagnant for three years and so on.
The year 2022 was challenging for any asset class, both more traditional and alternative - among them, cryptos.
Despite being less prominent than traditional markets, the crypto-asset industry has been affected by the same news that has impacted our daily lives and the money that is in our investment portfolio.
The correlation between the crypto-asset market and the traditional market has been increasing, especially when we analyze together the behavior of Bitcoin, the main cryptocurrency and industry reference, and Nasdaq.
The Nasdaq is one of the largest electronic stock exchanges in the world, specializing in technology stocks and other high-growth companies. Founded in 1971, it is the second largest U.S. exchange in terms of market value of listed companies, behind only New York City (NYSE).
Nasdaq is known for listing many high-tech companies, such as Apple, Amazon, Google, Facebook and Microsoft, as well as other companies in sectors such as health, finance and telecommunications. The stocks listed there generally have a higher volatility than those in the NYSE, due to the nature of the companies that make it up.
Because the world of crypto-assets is closely linked to the technology sector, and as the traditional market begins to see them more and more as a real possibility of investments, these assets began to behave in an increasingly similar way.
With due proportions, a fund that today is exposed to Bitcoin behaves in a similar way to a fund with exposures in technology companies, but with differences in terms of volatility: the prices oscillate far more in the universe of crypto-assets than in listed shares.
And even if you don't invest anything in crypto-assets, you should at least understand what's going on in this market, and I'll be brief to explain why I believe we're experiencing the start of a new positive cycle for the crypto industry.
Although the daily and weekly correlations of the crypto-assets are increasing in relation to the traditional market, they are still far from defining that both sectors are going to move in the same direction always.
As I mentioned at the beginning, Bitcoin is the main benchmark or benchmark of the market. Thus, the performance of other assets in general tends to resemble that of the BTC.
The smaller the design of a crypto-asset, the higher the volatility relative to Bitcoin, i.e. if the BTC rises, that asset tends to show an even stronger valuation.
Thus, if a project is already mature, with large size, and its technology and application are already in use, smaller tends to be its oscillation in comparison with Bitcoin. A curiosity: all other projects or coins are called altcoins, or alternative currencies.
In my opinion, the negative performance of the cryptocurrency market in 2022 (-66% for Bitcoin) can be explained by two reasons:
Factors impacting the traditional market, such as high US interest rate, war between Russia and Ukraine, global inflation, among others;
Factors inherent in the crypto-asset market, and the main one is the Bitcoin cycle itself.
Here, one important fact should be mentioned: the movements of the BTC (remembering that it tends to influence the other assets too much) are similar from time to time.
What determines these movements is what we call halving, that is, the bitcoin supply reduction process by half.
Yes, there is a production of BTC still ongoing, and so-called miners (the "producers" of the crypto-asset), are scattered around the world in search of creating more Bitcoin so they can then sell them.
A more positive cycle for Bitcoin tends to begin, analyzing historically, 15 months before the next halving, i.e. a further reduction in Bitcoin production.
This halving should take place between March and June 2024, and I believe that its proximity and occurrence should raise the price of Bitcoin and good alternative projects going forward.
Given all of this, one question that still persists, especially among people who are already investing or at least following the market is:
Has Bitcoin ever made the so-called fund? Or that is to say, has it already reached its minimum level of the current cycle?
In my opinion, yes.
All those factors that I cited at the beginning of the text seem to be a full plate for the fall of any crypto-asset. And that's why I believe the worst is behind us.
However, that does not mean that the future will be so bright. I just think it's going to be a lot less cloudy and unstable than the recent past.
With this I am making bi-weekly purchases of #Bitcoin and #Ethereum as well as other cryptos that I believe are promising.
Follow me here on the blog to know my favorite crytos and what I believe in this market.
See you next time.
