This bear market is not the first bubble pattern that has affected the cryptocurrency market, and it will probably not be the last.
The recent decline in the crypto market has corroded on most portfolios. Unless you are an experienced trader, you are probably not able to shorte the market. With that said, a significant price adjustment is something that might be good for the cryptocurrency ecosystem in the long run. After months of what looks like free-fall prices, it’s easy to understand why proprietors are skeptical. Let’s take a thorough look at significant errors in the crypto market, how they originated, and finally how the market can potentially eradicate them.
How did we end up here?
A number of reasons can send a market down in a negative trend. Fundamental analysts report unfavorable market conditions, otherwise called fear, uncertainty, and doubt (FUD), while technical analysts point to factors that buy fatigue and unsustainable volume. When the market value increases by 30 times during a year, like several cryptocurrencies did, it is often a simpler reason. Charlie Lee, the creator of Litecoin, released a tweet in December 2017 that sums up well;
Charlie Lee said, “When crypto goes up too fast, it exceeds its real value. A downturn for consolidation is normal. How long the decline lasts and how big it is everyone’s guess. “
For those who have not got it before, Charlie Lee announced that he sold all his inventory of Litecoin in mid December. In a rational market environment, investors would have interpreted this news as a very bad signal. Instead, many people reacted with euphoria in a fiery bull market.
Charlie was just called a non believer, and much more on Twitter. In the months that followed the statement, the total market value went from over $ 800 billion in January to $ 250 billion in early April. It’s a 70% decline that eventually showed Charlie’s statement was correct.
Now you can ask – How is this good?
According to Investopedia, a speculative bubble is usually caused by “excessive expectations of future growth, price increases or other events that can lead to an increase in activity values.” As prices rose, the more fresh money went into the market in the hope that it would continue. The transparent new actor in the market knew very little about the basis and technology of its investments. They were told that the new technology had the potential to change lives, thus the potential to give them a lot in value creation and gain. Without exploring their recent investment acquis, the new participants received almost instant satisfaction by seeing their assets go up in value. Family and friends were involved, and it would seem that the first ever rise-only market had been found.
You will often hear people say, “I came for the money and stayed for technology.” In many ways, rising prices are the best form of advertising for an otherwise unknown class of assets and technology. Many have received a deep gratitude for blockchain and the benefits it promises. It creates a curiosity to understand how your investments work. So when does speculation get bad.
Focus on wrong things
We can get some insight into the crypto market by looking at an older market with the big history, the stock market. A private company’s leaders only focus on building a profitable and sustainable business in the long run. When a company decides to become public by issuing shares in a listing, the primary focus, by law, is to serve its shareholders. The company’s board members are subject to intensive review of a board whose primary objective is to increase the price of the company’s share value. This narrow focus can result in short-sighted features that favor immediate revenue and cost savings, over important and long-term goals such as growth, innovation and positioning for long-term survival.
In the stock market, quarterly reports and annual accounting results are presented as measurable performance indicators. With the absence of similar firm references in the cryptic environment, the market was forced to place great emphasis on alarming news alone. The PR and marketing team went into an endless race against each other to generate hype. Market participants made it clear that they came in as speculators who want to sell at a higher price so that the teams responded accordingly. The following types of events are something that was used repeatedly, as often rewarded and strengthened the market reaction.
- Advertising of partnerships, often without major substance.
- Listings on new exchanges
- Announcements about forthcoming announcements
- Specific rumors that were spread. (eg, Dragonchain is in dialogue with X, who is the manager of X. Conclusion; Dragonchain discusses a partnership with X. Buy before it is announced.)
Look back at the fundamental
You will usually not read about the necessity of having an expensive coin to work in whitepapers. When a project generates more users, the natural effect should be an increase in the price. This is where the bull market went wrong. Projects ignore the long-term goal of growing their userbase, and instead take shortcuts in the form of marketing flu and hype. In a bear market, the same type of hype-driven news is not close to deliver a an equally large impact.
This property is precisely what makes the bear market healthy
When the same old tricks lose their effect, projects have a choice. They can decide to focus on creating value and achieve the product’s original vision, or they can give up. Many teams choose the second option. In this way, the market has lured out poor quality projects. If a coin’s case was never legitimate initially, the project would die when the market satisfaction disappears, and the rising prices stop. Furthermore, the integrity and work ethics of the project members themselves are tested. Those who trust that their project will deliver real value must show endurance.
The cleaning effect of the bear market extends. The same new market participants who were rewarded for buying crypto despite lack of research began to feel the consequences. They also have an opportunity to quit or resume. Once the market they once knew changed to unknown territory, many took their losses and left. For very many, it was just about quick, easy money. Who’s left after they’ve left the scene? The believers. Those who take the time to investigate their investments, and learned about the real potential of crypto and blockchain technology. This knowledge convinces them, with confidence that their investments will eventually return. Those who never had faith in the first place disappear. Weak hands go away. Strong hands remain.
A bright future
This market is not the first bubble pattern that has affected the cryptocurrency market, and it will probably not be the last. Lack of research went unpunished, and almost every coin made significant gains. As a result, people became comfortable with buying everything. Scams and fast ICOs were allowed to succeed. When the market turns into a more positive sentiment, we can expect investors to be much smarter as a result of experience.
On the other hand, many coins gained 10x and even with 100x by generating a lot of hype without any sufficient substance to justify it. Now, with a smarter base of market participants, the crypto projects must focus more on differentiating their products and platforms based on a real value. This can be a catalyst that leads to competence enhancement throughout the crypto ecosystem.
Those who really improve and develop the technology will be the ones left behind.