In the past, the crypto market has gone through some cycles, which is usually led by the Grand Daddy of crypto, Bitcoin. But is this cycle the same as the last few or is this time different? Are we in a bear market, a sideways market or something different? What has changed that could make this time different? What are some of the speculations, some safe strategies and opportunities to help us navigate our way on this rollercoaster ride through an obstacle course?
Are you ready to go for a ride?
Past Crypto Market Cycles
Before we get to the current market conditions, it is important for context that we take a look at the past. There is commonly used saying, Those Who Do Not Learn History Are Doomed To Repeat It. This could apply to our current market situation, so let’s take a little look at the crypto market cycle.
According to Crypto specialists Luke Lango and Charlie Shrem from Crypto Investors Network:
The behavior in the crypto markets is predictable because human psychology is consistent. Bitcoin goes through “cycles,” and these cycles follow the same four-step process:
Bitcoin is busting for a few years, people are suffering from FOMO (fear of missing out) everybody will get bullish..
For various reasons, the price of bitcoin falls precipitously for about a year. Human desperation sets in. Everybody will get bearish.
Bitcoin bottoms out pretty quickly. Man reaches the “acceptance” stage. Bitcoin rebounds.
Bitcoin returns to step 1.
Some think history is repeating itself today. Right now we’re somewhere in step 2 and getting awfully close to step 3.
It’s easy to feel bearish as a crypto investor right now. And it’s not just Bitcoin.
Some altcoins are on a dip too.
Source for above: https://investorplace.com/2022/01/bitcoin-cycles-point-toward/
What is different today and what is not different?
Let’s start with what’s different.
In short, bitcoin is no longer behaving like an inflation hedge. In 2021 there was a strong correlation between the price of Bitcoin and the 10-year Treasury yield.
As yields surged on inflation fears, bitcoin surged. As yields faded, Bitcoin fell.
From early January 2021 to late December 2021, bitcoin and the 10-year yield moved almost in lockstep.
With the Fed raising interest rates over the next few months, the market has lost all risk appetite.
Bitcoin has always been a hedge against inflation and a risky asset. But as risk-taking is exhausted, the latter trait outweighs the former.
This is bearish in the short term.
There is also a specific metric – the Crypto Fear and Greed Index – which uses market volatility data, trading volume data, social media data, survey data and search interest data to quantitatively determine how bullish or bearish crypto investors are at any given point in time. The scale ranges from 0 (bearish) to 100 (bullish).
The index is has been low for a couple of months now.
The last time the index was this low?
In July 2021 – just before Bitcoin doubled in about a month.
Buying when pessimism rules the day is not easy. But be mindful of the old adage of Warren Buffett: “Be greedy when others are fearful.”
Bottom line, it’s a painful moment for crypto investors. And we should expect even lower prices.
If you look at the history of Bitcoin. Time has proven that buying in the darkest of moments was a wealthy decision. Yes, sometimes it takes a while. So far it has not failed. But is this time the same?
Are these past cycle a measuring stick for future cycles?
While many claim that there are consistency and correlations with these former crypto market cycles. There are a handful of us who believe something has changed since the previous cycles. What has changed? Well, quite a lot actually. Crypto has only been around since 2009, with the birth of Bitcoin. There were a handful of other cryptocurrencies that followed, but the technology has taken a while to mature.
Many of the applications of the blockchain space are just recently being realized and it is having a bit of a snowball effect. Remember when the internet first started to appear in the mainstream and many thought it was just going to be a fad? The internet had to go through it’s own evolution and we are witnessing that right now with the crypto space.
Unfortunately, the crypto market moves up and down with the stock market. Which often follows the pattern of news and current events. A worldwide disease outbreak that has started and stopped economies and supply chains. Real estate crisis in China, countries butting heads with people worried about possibilities of war, US inflation seeing levels it hasn’t touched in 4 decades, the US Federal Reserve threatening to raise interest rates for the first time in a long time. These are just a handful of factors that can shake up the markets and cause FUD.
Many claim that Bitcoin and the rest of the crypto market are due to uncouple from other markets. But, some still don’t understand how cryptocurrency fits in to the big picture, but big money investors are starting to pool there assets in to the crypto market.
There is still a hesitancy for many, because the lack of clarity on regulation, especially in the US, as the SEC has been butting heads with XRP, also known as Ripple. The outcome of this case could have an effect on the overall crypto market. Because then we may know whether XRP is classified as a security or an asset. If it is determined that it is a security, then retail investors will not be able to get easy access to cryptocurrencies like they are able to now. Only time will tell what that outcome will be. Because this case could end tomorrow or could drag on for years.
So, until we have the regulatory clarity, there will always be the underlying hesitancy for many to go all in to crypto. Especially institutional investors. Because, when they ape in and the crypto market starts to take off like a rocket ship, retail investors will follow. Because crypto will be taking over much of the financial news cycles and bleed in to the mainstream a whole lot more than it is now.
So, what should we do in the meantime?
Keep your eye on some of the narratives that are steering the future of the block chain space is a good start. Just what are these narratives you ask?
Scalability and Interoperability
Scalability and operability are two of the biggest problems currently facing blockchain networks today. Scalability is the ability of a cryptocurrency to cope with the influx of a large number of transactions at a time. Many of the ecosystems and blockchains operate independently and have a hard time handling all of these transactions.
Some blockchain networks are making advancements in scalability, by allowing for more transactions per second and therefore are faster than some of the older blockchains. Avalanche and Solana are a couple of these blockchains.
Cosmos and Polkadot are working on a bigger solution to this problem, through interoperability. They are allowing blockchains to communicate with each other while also respecting the independence and unique governance mechanisms of each blockchain. They aim to create a system where one blockchain could send data to another blockchain seamlessly in a decentralized manner. Perfect interoperability would allow any blockchains to share both data and value with each other, which would unlock massive potential and growth for cryptocurrencies, unlike anything we’ve seen thus far in their development.
This will allow some of these blockchains to flourish.
With inflation rising and the Fed about to raise interest rates. Institutions will be looking for new ways to increase their holdings. With the hopeful and eventual Institutional adoption of cryptocurrency. They will be looking for options within the blockchain space.
Time to get Terrafied
Many think that the Terra ecosystem is due for a boom year. With their many Defi protocols. Including Anchor Protocol, that offers consistent yields through their native stable coin UST, one can simply park that asset in the Anchor protocol for a yield of just under 20% a year. You can also borrow UST against Terra’s native token Luna on Anchor.
Retail investors have been utilizing this leverage strategy. Then they take their borrowed assets and used them on other defi protocols throughout the Terra ecosystem, which is offering new ways to make money through staking, liquidity pools and other strategies across the ecosystem. Just imagine when institutional investors get their greedy paws on strategies like this. Terra will be on a moon mission and beyond once that happens.
Terra isn’t the only blockchain offering good returns in the Defi space. Fantom has been taking off too lately. With some of the high yield returns offered through Tomb Finance, Spooky Swap and Spirit Swap. People have been aping in to Fantom, but bear in mind they do offer some high rewards, but there is some risk involved as well. So tread carefully.
NFTs were all the rage in 2021 and 2022 is looking to be no different. When the regular crypto market was in the red, a good chunk of the NFT market remained in the green. A couple of high end blue chip NFT collections led the way. Such as Bored Ape Yacht Club leading the and Crypto Punks.
If crypto is in a bear market, clearly NFT collector didn’t get the signal.
Play to Earn Gaming/Metaverse
With many play to earn games only really starting to deliver on their promises in 2022, we can expect fireworks in the projects that actually ship amazing things. There are many games already out and many more on the horizon. Some good games and platforms to look in to are Thetan Arena, SuperFarm, Gala Games, Phantasm, Immutable X, Vulcan Forge, Monkey Ball, Derace, Big Time, Sipher, Sidus Heroes and Syn City.
In a Nutshell
Nobody has a crystal ball in crypto and there are no guaranteed strategies. But there are some safer bets than others. But always Do Your Own Research. Make sure whatever you invest has good Fundamentals. Don’t ape in to anything without knowing your way around CoinGecko and CoinMarketCap for starters. If it is in the Top 50, it is probably there for a reason.
Go to their site, read their documents, do they have a roadmap? Are they active on Twitter. Zoom out when you look at the chart, are they on an uptrend and not just pumping?
Stable coins are your safest and lowest risk. Staking stable coins for consistent yield is a great way to just park your assets when market conditions are roughest. Some stable coins are: UST, USDT, USDC, DAI and MIM.
Blue Chip Cryptos are next. Those would be: Solana, Matic, Luna, Atom and BNB. Also worth mentioning are Chainlink, Polkadot and the up and coming NEAR.
You best strategy with Blue Chip Cryptos is to stake them or add them to a liquidity pool, preferably with a stable coin on a DEX.
You notice that we did not mention Bitcoin and Ethereum. Well, those 2 tend to move up and down together and they have both lost almost lost half of their value since this past fall. So, it would be a good idea to hold off on those for the short term.
Play to Earn gaming are not a guaranteed short term investment, but crypto gaming is already hot and it will soon take a big chick of the crypto space. Gaming is already popular and gamers would rather get paid to play. So look at what games people are actually playing, not just what has the hottest buzz.
Blue chip NFTs. You will need deep pockets for these. The blue chips are: Art Blocks, Bored Ape Yacht Club, Crypto Punks, Cool Cats and Gutter Cats.
Bare in mind tat during the last bear market in 2020, NFTs seemingly came out of nowhere and led the way during the bull market that followed. The buzz had calmed down, but clearly has not gone away, because NFTs are still performing well. The NFT market just become oversaturated, but people are still paying a lot for the Blue Chips, which clearly are not going away any time soon.
We could mention some other strategies, but there are not guarantees during this current rollercoaster ride through the crypto market. I could speculate and analyze this until my fingers falls off and my brain fallout out, but, I just ant to stick with the basics. So hold on, stay safe and don’t be a degen or you could get wrecked.
In Conclusion, well not really, because we’re still on the ride...
I'm curious if we will see a further dip. I'm leaning towards yes. I seen this coming in November, I try to keep my ears open, zoom out and look at the overall macro-economic picture.
The US Federal Reserve sadly has the power to make and break, not only the US economy, but much of the world.
I think we're going to be on a rollercoaster until spring/summer. Once the Fed raises interest rate and if we are lucky to get some clarity with the SEC vs XRP. Hopefully this does not drag on past spring.
If XRP is not labeled a security, I think we are going to see institution investors ape in to crypto, especially defi, to take advantage of the opportunities, since the well is running dry in traditional finance.
Retail investors will follow the money, as they usually do. As cryptophiles, whether you have been in this space for a few years or just a few months. We already have a leg up, because many of us understand the space more so than those who will eventually ape in. Now is the time to dig our heels in, DYOR (Do Your Own Research), develop a short term, mid term and long term strategy, invest in the fundamentals and build a framework and game plan for the future. Because crypto is not going away anytime soon. It is always the early adopters who prosper.
Feel free to mention anything else that could be helpful for the fellow reader. Whether that is your take on the current situation, not financial advice or what you plan on doing.
If you are feeling generous and are not holding on to all of your chips or just want to cash them in or give them away. I do have a tip jar and I will gladly take those chips and invest them wisely...