Currently, the digital currency market is filled with panic after many investors were caught off guard, seeing some of their crypto assets wiped off within 24 hours after a massive decline in value on Monday.
No cryptocurrency investor will forget in a hurry how the market tumbled on Monday, May 9, 2022. Out of over 10,000 digital currencies in the world, major coins such as Bitcoin, Ethereum, etc., lost over $1 trillion in value, TechEconomy gathered from Binance, the largest crypto-exchange platform, on Monday.
Cryptocurrencies, which are still very much in their early stages, are volatile with no intrinsic value and are primarily driven based on market speculation and narratives. The overall market including stocks noticed the high correlation between Bitcoin prices and the general equities markets.
Bitcoin, which is known to be the leading digital currency, started Monday on a weak note, trading at $30,900, down nearly 19% over the last week. This is Bitcoin’s lowest point since July 2021.
Some of the cryptocurrencies that dipped include: COIN -19%, MSTR -25%, BTC -12.5% (since Friday close), ETH -14% (same), LUNA -35% (same). This is the same fate the commodity market suffered. Stocks such as Nasdaq -4%, TLT +1%, Gold -2%, Oil -7%, NatGas -12%, URA -8%, Soyb -2%, VNQ -4%, ARKK -10% all recorded massive dip within the same period.
“The S&P 500 and NASDAQ have had the largest correlations to Bitcoin with 0.88% and 0.91%, respectively. A correlation of one means that they move equally one to the other,” says Armando Aguilar, head of alternative strategies and research for Ledn, a digital asset savings and credit platform.
“The S&P 500 and NASDAQ have had the largest correlations to Bitcoin with 0.88% and 0.91%, respectively. A correlation of one means that they move equally one to the other.”
In a market analysis obtained by TechEconomy, Edward Moya, senior market analyst at foreign-exchange brokerage Oanda, noted that institutional investors are paying close attention to bitcoin as many who got in last year are now losing money on their investment,”
“If the USD 30,000 level breaks, that could trigger a flash crash environment if several whales unload.”
Preparing For Unforeseen Circumstances
Surviving in the crypto market requires investors and traders to have tested and proven strategies while being proactive at the same time. When big companies like Facebook, Google, or Microsoft make positive or negative announcements that affect the crypto market, it shouldn’t be ignored.
Recall that Google had banned cryptocurrency advertising on its platform, which is expected to kick off in June. Some market watchers have attributed this to one of the reasons a massive dip was recorded in the market.
Scott Spencer, Google’s director of sustainable ads, said the ban was necessary to protect consumers from being scammed: “We don’t have a crystal ball to know where the future is going to go with cryptocurrencies, but we’ve seen enough consumer harm or potential for consumer harm that it’s an area that we want to approach with extreme caution.”
Clearly, nobody knows what exactly the future of cryptocurrency holds. However, caution must be applied while trading the market. Caution implies knowing when to buy when to sell, and understanding market trends, indicators, and technical analysis.
Chris Ani, one of Nigeria’s cryptocurrency evangelists, in a free webinar observed by TechEconomy hinted that the market was expected to nosedive.
He reiterated that knowledge will always remain the most critical asset in the crypto market. Ani noted on the sidelines that many Nigerians are always bent on making the money from the market without having the requisite knowledge to understand the trends, intricacies, and technicalities of the market.
Market Optimism – Will Major Coins Like Bitcoin Rise Again?
Will this be the beginning of the end? Many market watchers and investors will be pondering. What happens anytime there is a dip in the crypto market in developing countries like Nigeria, especially from anti-crypto crusaders, is – there will be too much negative narrative.
One thing all experts across various industries have agreed on is that investing in digital currencies is highly speculative and no one should invest money they cannot afford to lose.
Stefan Hofrichter, head of global economics and strategy at Allianz, said the media hype surrounding crypto will continue for some time, but he’s still convinced it’ll all come crashing down.
In a lengthy blog post, Hofrichter said bitcoin mania exhibits all the classic signs of a bubble that’s about to burst.
“It appears to us that bitcoin mania is a textbook-like bubble – and one that is probably just about to burst. As a currency and asset class, bitcoin has potentially fatal flaws – which is why we believe it’s a matter of when, not if, the bitcoin bubble will pop. Its trajectory resembles a textbook case of a financial-market bubble, and it is lacking several key qualities that would qualify it as a currency. “
The good thing about a bitcoin bubble bursting, says Hofrichter, is that it won’t have much effect on the “real world” because it’s still a relatively small asset class
“Bitcoin’s demise would have few spillover effects on the ‘real world,’ since the market for this cryptocurrency is still quite small in size,” Hofrichter reasoned. “As a result, we believe that the risks to financial stability stemming from bitcoin are negligible – at least as off holds.