2021 was a great year for the crypto market. Its value hit new highs repeatedly, and investors were thrilled. At the beginning of 2021, the total market value of cryptos stood at just $779.5 billion. By the end of January and May, the market has successfully crossed the $1 trillion and $ 2 trillion marks. Although the market dipped in July, November ushered in another high.
The most famous digital asset, Bitcoin, shot to a new all-time high, reaching $69,000 on November 10th. Investors poured into the market because of these consistent achievements, which had a widespread positive impact. Amid this growth, Bitcoin’s dominance declined to about 59.8% by the end of the year.
At the same time, the market was still growing exponentially, and The World Economic Forum placed the total market cap growth in 2021 at 187.5%. The progress can be attributed to the overall development of the encryption ecosystem experienced in 2021. Other significant factors that greatly impacted the market were emerging projects and the blossoming of other ecological sectors.
Is the crypto market crumbling?
Although 2021 was a great year for the crypto market, 2022 came along, and it seems like the golden age of cryptocurrencies could be coming to a painful end. The main reason is that the market has been experiencing a plunge since the beginning of the year. The entire market has been wiped clean of $ 1 trillion, and Bitcoin is down nearly 37% as of late May.
Besides the king of all cryptos, other major coins like Ethereum are doing much worse, with this coin losing about 50% value within the same period. Terra Luna was particularly hard hit, losing almost 100% of its value in early May. The financial markets are all experiencing a decline, and because of the current bearish trend, there have been rampant sell-offs in the crypto market. That explains the $1 trillion loss in the overall market.
Crypto is particularly heavily impacted compared to other risk assets, i.e., equities, and the values continue to fall further and further. Many investors, especially beginners, now understand that cryptos are not the best hedge against inflation. At the same time, never in this market’s history has there been proof of its being a safe haven during periods of war, a food crisis, a pandemic, stringent central bank policies, turbulent markets, and global supply chain issues.
By now, investors have realized that cryptocurrencies are a lousy hedge against inflation. The financial markets are currently being affected by some of these factors. The Federal Reserve is pulling back, and Russia has also invaded Ukraine, not forgetting the current high inflation rates and hiking oil prices.
What you need to know about investing in the crypto market
Individuals and groups that invested in Ethereum, Bitcoin and other cryptos when the market was just being established have made a killing. Although it has produced many millionaires and multi-millionaires, cryptos have had a long history of extreme volatility. This is certainly not what you as an investor are looking for in uncertain market conditions such as those currently experienced.
Bitcoin has experienced several pullbacks of over 80% throughout the course of its history. The worst was an approximately 80% crash that occurred in 2018. Like other digital coins, it is not tied to intellectual property or physical assets. Furthermore, it does not generate cash flow, and neither does it pay interest or dividends to investors.
The price of virtual coins is exclusively linked to supply and demand, making it challenging to assess the fundamental value of each of the thousands of coins in the market. Warren Buffet, the CEO of Berkshire Hathaway, discussed the shortcomings of Bitcoin at the conglomerate’s annual investor meeting. He expressed that he wouldn’t be willing to pay $25 if he was offered every last Bitcoin.
He expounded that whether the coin surges or drops in value within the next one, five, or ten years, he is sure that it neither produces anything nor multiples. The volatility and correlation of cryptos to other risk assets might eventually die down in the coming future. However, the recent price actions in this market suggest that investors need to brace themselves for a bumpy ride.
When it comes to purchasing the dip, you need to proceed with caution. Whenever the crypto prices decline as rapidly as they have in the past weeks, you might start to think that you’ve just gotten yourself a great deal. However, as all Wall Street professionals know, buying a dip nearly always ends in regret and losses. Although skillful investors have the potential to take advantage of the current heightened volatility, it might be more challenging for you as a regular retail crypto investor. Keep observing the market, but the golden era of cryptos might just be coming to a halt.