With a thud, cryptocurrency prices began in 2022, giving back much of the previous year's gains. In late January, the value of the most valued cryptocurrency, Bitcoin, had dropped by more than 40%.
Cryptocurrency prices have steadied a bit, but there are still some concerns about a market collapse. Volatility in cryptocurrency prices is nothing new; it's part of the risk of investing in this kind of currency. In addition, even if the causes of each crypto meltdown are unique, some of the same investment principles may still apply.
Did Crypto Ever Crash?
Cryptocurrency investors who have been doing so for some time are used to seeing large gains and losses. When Bitcoin hit a record high of over $20,000 in December 2017, it was selling at about $3,500 by 2018.
Tremendous changes may be seen as Bitcoin acquires traction. An investment business focusing on digital assets has a CEO who says these movements make sense when seen in the context of the long run.
What Are the Hazards of Crypto?
Cryptocurrency's demise may tempt someone who has been interested from the sidelines to go in and "buy low." However, King urges that you ask yourself two questions before opting to invest in Bitcoin or other cryptos. If you'd lose sleep at night if your crypto holdings went from 80% to 90% down, consider selling. "Don't invest if one of those questions is true."
Why is Crypto Going Down?
In addition to interest rates, inflation, and other macroeconomic variables, the price of crypto can be impacted by these factors, undermining investors' confidence in hazardous alternative assets.
One of the factors that might cause investors to become pessimistic about the future of crypto is government regulation throughout the world.
Many public authorities consider the implications of cryptocurrencies for the economy and other areas such as national defense and the environment.
Reasons for a Crypto Crash in 2022
The year 2021 will be remembered for its stock market performance when it comes to a close. The S&P 500's average yearly total return of 11% over the last four decades had more than doubled by Dec. 13 (+14%).
It hasn't been good for cryptocurrencies, though; it has been amazing. This year, the value of digital currencies has surged by 176 percent to $2.14 trillion, making them the most valuable currency in the world.
Non-fungible token (NFT) increase, decentralized applications (DeFi), and blockchain-based metaverse games have fueled investor interest in the blockchain industry. Shiba Inu meme-45,000,000% coin's year-to-date surge in value is one example of cryptocurrencies seeking life-altering rewards ( SHIB 1.11 percent ).
· Reversions are not uncommon historically.
First and foremost, the history of the crypto market implies that it is in peril. Following significant upswings, there have been several reversions in the previous decade, and this is not an anomaly.
There has been a 14-fold increase in the value of all digital currencies to $2.14 trillion since the low was reached in March 2020.
The 35-fold growth in overall market value between March 2017 and January 2018 is eerily comparable. A 90 percent decrease in the value of all cryptocurrencies followed in the 11 months that followed the January 2018 peak.
· Blockchain enthusiasm outpaces application.
There is no doubt that blockchain technology has a bright future. DeFi enables low-cost, near-instantaneous cross-border payments by democratizing the process and making it accessible to citizens in emerging markets.
Blockchains based on smart contracts have the potential to transform supply networks. When it comes to new technologies, investors always, and I mean always, underestimate how quickly a new service or product would be embraced.
Like the internet, business-to-business trade, genomics, 3D printing, and now blockchain technology has evolved, we've seen it all unfold before our eyes.
· Inability to escape the stock market
The incapacity of cryptocurrencies to separate from the stock market might also lead to a meltdown in 2022. For the most part, digital currencies are seen as stand-alone investments that may be used to mitigate the risks of the larger market.
For example, the quantity of Bitcoin (BTC 0.46 percent) appears to be set at 21 million tokens. Investors see Bitcoin as a safe-haven investment that will help them store and build their wealth, especially in light of the increasing US money supply, if not better. However, when the stock market goes through a fall or correction, cryptocurrencies haven't fared well.
The S&P 500 entered the bear market territory in the fourth quarter of 2018. (a decline of 20 percent ). Over the same period, the total value of cryptocurrencies fell from $222 billion to $130 billion (a 41 percent drop).
How can Bitcoin fit into your Portfolio?
Crypto experts advise against making "all in" investments. Jake Yocom-Piatt, a co-founder of the cryptocurrency Decred, advises against buying big sums of cryptocurrencies.
"When you buy a lot at once, and the price goes down, it's quite tough for individuals mentally." Instead, he recommends dollar-cost averaging, a classic investment approach in the stock market.
Instead of buying it all at once, buy a tiny bit each month and maintain doing so, as the price rises or falls, so that you don't have to cope with the psychological burden for the foreseeable future."
