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The volatile cryptocurrency market is like a rollercoaster, experiencing dizzying highs and gut-wrenching lows - like the 2014 and 2018 crypto crashes where the market plummeted by over 80%. 2022 was an absolute bloodbath, exhibiting one of the darkest periods of realized losses of all time.
Despite the bleak outlook, the crypto market has a history of bouncing back after a downturn - reaching new heights and rewarding investors who held on with extraordinary gains. Looking back, times of fear have often turned out to be the best opportunities to scoop up high-quality crypto projects at rock-bottom prices.
However, is this time different? Will crypto recover or is the industry truly doomed in 2023 and beyond? The following discussion will explore why crypto is likely not dead and look at different ways to navigate the crypto market until the dust settles.
Why Did Crypto Crash?
Multiple factors are fuelling crypto’s downward trajectory, many of which are far larger than the crypto market itself.
The overall decline in prices and consumer sentiment is predominantly linked to the bleak economic conditions of the global economy. The rise in inflation and the adoption of stricter monetary policies have resulted in decreased purchasing power for consumers, prompting many investors to reduce their investments in high-risk assets like cryptocurrency. Typically, when momentum slows down, high-risk investments lose their appeal, and investors seek to invest their funds in markets that are less prone to volatility.
Another significant cause of the crypto market downturn is a loss of trust. If trust evaporates, prices plummet. Crypto is a relatively new technology, meaning that signs of trouble such as cyberattacks, ecosystem collapse and product failures can adversely affect the broader sector. Two of the most destructive events that have dampened trust in the crypto market include:
- Collapse of Terra Luna: In early 2022, LUNA, the native cryptocurrency of the Terra ecosystem and a previously top 10 cryptocurrency by market capitalization, lost virtually all its value in the span of a week. The collapse of the Terra network cost investors over $60 billion. The more information on how the collapse happened click here.
- FTX bankruptcy: In late 2022, the FTX, a previously top 5 exchange by trading volume, filed for bankruptcy. The exchange operators allegedly overleveraged their operations and mismanaged user funds in the process. FTX owes over $3 billion worth of assets to over 1 million different users.
What Cryptos Will Survive?
Every time the crypto market has crashed and recovered, only a small fraction of available cryptocurrency projects survive. Many old projects lose demand and phase out as new and more innovative projects enter the crypto space and take market share.
Only two (essentially) universally accepted blue-chip cryptos exist in the crypto market: Bitcoin and Ethereum. While it is not guaranteed that these coins will survive in the long run, they have the strongest track records and most robust value propositions.
Bitcoin
btc
Bitcoin$66447.00*
*prices delayed up to 10 minutes+0.34%
24HDisclosure: eToro USA LLC; Investments are subject to market risk, including the possible loss of principal.
Bitcoin is the undisputed gold standard in the crypto industry. It is a new financial system that can’t be controlled or manipulated by politics or human greed — a fair and transparent money for a divided world.
From an investment standpoint, the closest thing that Bitcoin can be compared to is digital gold. Bitcoin can be considered as a speculative super commodity with a value proposition based on it being a perfectly scarce, portable, immutable and divisible savings technology.
Bitcoin reigns supreme in the world of cryptocurrencies, boasting the largest market capitalization and a long-standing history of leading the market. As the original cryptocurrency, Bitcoin has established a unique network effect, making it less susceptible to being superseded and often serving as the first point of contact for newcomers to the cryptocurrency industry.
Ethereum
eth
Ethereum$3252.94*
*prices delayed up to 10 minutes+2.64%
24HDisclosure: eToro USA LLC; Investments are subject to market risk, including the possible loss of principal.
Ethereum is like a big computer network that anyone can access, which runs on a lot of devices all over the world. It allows developers to create and run decentralized applications (dApps) on this network instead of using a single central server. This makes the applications more secure and less likely to be controlled by a single authority.
Ethereum (ETH) is the most well-known altcoin in the cryptocurrency space and the second-largest cryptocurrency by market capitalization. Its leading position in the programmable blockchain sector, growing institutional adoption and future upgrades and deflationary economics truly put Ethereum in a class of its own.
Is it Safe to Invest in Crypto Now?
Before diving into whether it is safe to invest in crypto, it is important to understand what a crypto bear market is. Bear markets occur when supply surpasses demand, confidence declines, and and prices decrease. Historically, they bear markets have lasted from 6 months to 2 years.
Compared to traditional markets, crypto markets are smaller and more volatile. Therefore, it is common to see prolonged and more volatile bear markets, with prices drops of up to 85%. Nonetheless, considering that the crypto market has already dropped by over 75% from its all-time highs in late 2021, it is reasonable to assume that the bear market's conclusion is closer than the start.
If you believe that the value proposition and concept of cryptocurrency haven’t changed, investing in Bitcoin at $20,000 is no different than investing at $50,000. Although sentiment may have shifted, the fundamentals remain unchanged. However, what’s needed is a strong conviction in the use cases of crypto and an acknowledgment of the extreme risk and regulatory uncertainty of the market.
Overall, determining whether investing in crypto is safe depends on your risk tolerance and investing strategy. Although the crypto market is expected to recover in the long run, short-term declines are likely, and future success is not guaranteed. The best approach is to manage risk, stay informed, and remain calm during turbulent times.
Where to Buy Cryptocurrency
Major cryptocurrencies such as BTC can be traded on exchanges such as Uphold, Gemini, WeBull, eToro and Crypto.com. Many of these platforms allow you to purchase Bitcoin using your credit card, through swapping features or through different trading pairs such as BTC/USDT.
Terms Apply. Cryptoassets are highly volatile. Your capital is at risk.
Cryptocurrency is offered by eToro USA LLC (“the MSB”) (NMLS: 1769299) and is not FDIC or SIPC insured. Investing involves risk
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So, is Crypto Dead?
Overall, while the short-to-medium term appears quite grim for the cryptocurrency market and broader financial markets, the long-term future for cryptocurrency is still bright and hopeful. Some experts claim that crypto is a dying trend, but this is a common sentiment during crypto bear markets.
Virtually all the catalysts that have caused crypto to crash throughout 2021 and 2022 aren’t from the underlying technology but rather from external factors such as the corruption of centralized entities or tight monetary policy. If development continues to flourish and clearer regulation is established, there is no reason why cryptocurrency cannot bounce back like it always has in the past.
Bitcoin and the entire cryptocurrency have been presumed dead by the media as many as 467 times in its history. No matter how harsh the crash, crypto has always found its footing. The narrative of crypto remains the same: a faster, fairer, more secure and decentralized alternative to traditional financial systems – shifting the power from centralized authorities to users. As long as this narrative exists and is still relevant, crypto is likely not going anywhere anytime soon.