March 2020 has seen a sharp decline in the cryptocurrency market. In about 8 hours, the value of bitcoin, the leading crypto coin, dropped by over half to the $3000s. Anti-crypto economic experts and financial institutions' claims against this 'unregulated' market seem prophetic at the moment.
But, is cryptocurrency gone? Worry not. It is hard to argue against crypto's resurrection.
First, these markets have experienced similar slumps before. The 2018 market drop is not lost among the keen followers of cryptocurrencies. This slump also followed quite a prosperous 2017.
This decline only lacks precedence because crypto trading has never experienced a slump tied to global events. Even pro-crypto experts believe the market may still go lower (but not below $2000). But that may also be the mitigating factor.
The Dow Jones Industrial Average decline of 9.99% is the chief catalyst that led to this significant drop in Bitcoin prices on 12 March. Since the fall began on 8 March 2020, a clear correlation between the dip in the US stock and that of cryptocurrencies has become evident.
In crises, people avoid stock purchases and other high risk ventures. This year, the American stock market has reported its worst sell-off in 33 years (since Black Monday, 1987).
The eventual cryptocurrency slump has been brewing for quite some time. It is easy to point to the coronavirus because it encapsulates other factors. But the recent oil price disagreement between Saudi Arabia and Russia has also left an imprint on the economy and the global markets as investors started shying away.
According to Coindesk.com, the Federal Reserve has reacted to this decline by launching the ZIRP (zero interest rate policy) strategy and buying up to $500 billion in American Treasury Bonds. It was done after a meeting by the FOMC (Federal Open Markets Committee) on Sunday 15 March 2020. The rates have been cut to between 0.0%-0.25%, and such a cut was last seen in 2008 (the Great Recession).
The move pumps more dollars into the economy, and bond prices will soar as the bond yields decline. The impact on cryptocurrency has been immediate. Bitcoin prices rose by 7.7% ($5,182.70-$5,582.62) within an hour of the announcement.
The cryptocurrency crash from the$5000s to the $3000s is also due to the high leveraging and the frugal nature of buyers when a market becomes uncertain. And now more than ever, cryptocurrency trading has become conjoined with the traditional market. More and more certified and notable investors like Facebook have entered the crypto market.
Remember, crypto has carved its fair share of the market. At the beginning of the year, there were over 5,000 crypto coins and 20,000 markets. The Crypto trading market cap reached $208 billion. That said, not all cryptocurrencies survive major dips like this one.
Even without a crisis, many currencies die once people stop buying and selling on their blockchains. But an entire market doesn't just evaporate overnight, at least in theory. A complete crash of bigger players like bitcoin will destabilize the crypto market, no doubt, but only for a while until another crypto coin steps in.
Trading is about market timing. The recent trajectory, and of course predictions, in the market, can tempt many to sell. Selling's not the issue; it's rejoining the wagon that's going to be difficult. Plus, selling at the moment means a considerable loss.
Mike Novogratz, CEO of Galaxy Digital, believes cryptocurrencies, especially bitcoin is set to become more influential in the coming years. He says that investor confidence in several other assets across the globe has dropped sharply, making bitcoin a sure bet in the long run.
Michael Sonnenshein, the MD of Grayscale, held similar sentiments. He believes that HODLers should stay calm amid the intense uncertainty because the market always bounces back.
However, speculators who always bet on an upward trajectory always bear the brunt of these dips. And this time, the losses have been staggering. Alleged stories of market manipulation in the crypto market have started surfacing because some theorists believe that the big sell-offs are usually calculated to drive the market value down.
But most analysts believe drops in cryptocurrencies usually introduce a rise.
Experienced crypto traders know that the market will recover. Bitcoin and other crypto coins are designed to survive such dips and extreme peaks as well. Volatility is in their DNA.
The cryptocurrency market is unpredictable, and some analysts still expect the much-awaited high of $20,000s soon.