Only recently the cryptocurrency market was flying high with fresh all-time highs across the board. But true to its volatile nature, the market came dipping back down, sending prices south.
Many believe that the digital assets market moves in four-year cycles. So, what caused this latest price depression and are we coming to the end of this cycle’s bull run? Let’s take a look.
What’s going on with cryptocurrency prices?
It was only recently that major players like Bitcoin (BTC) and Ethereum (ETH) were hitting record highs.
Unfortunately, with the cryptocurrency markets, you will often see two steps forward and then one step (or more) back.
Over the last seven days, we’ve witnessed Bitcoin’s price crash down from around $66,000 (£49,000) at the beginning of last week to roughly $58,000 (£43,000) at the time of writing. This is equal to a 12% shedding of value.
As has happened in the past, where BTC goes, the rest of the market usually follows. And so the pain was felt across the board as some of the smaller digital currencies took much bigger hits to their valuations.
Why did cryptocurrency prices drop?
It’s always difficult to pinpoint the exact reason for a market correction because there are usually so many factors at play. But here are some of the potential catalysts that led to a big sell-off:
- The US has passed a new infrastructure bill that does not treat cryptocurrency favourably for tax purposes.
- There are fears that court cases around the Mt. Gox settlement and the rights to Satoshi Nakamoto’s 1.1 million BTC wallet could flood the market with selling pressure.
- Twitter has squashed rumours that it had plans to buy Bitcoin (or any other cryptocurrency).
- Investors are wary that there’s lots of market froth with meme coins and NFTs booming in value.
What’s next for this cryptocurrency cycle?
Some ‘experts’ out there believe that this current bull run will come to an abrupt end towards the end of the year (similar to 2017). Others have the opinion we’re in a ‘super cycle’ that will continue into the new year.
The truth is that no one has a clue. Even the most ardent crypto enthusiasts will openly admit that speculation plays a big role in any investment. Technology in the space is advancing at a fast pace and there’s some really interesting progress in areas like DeFi (decentralised finance). But progress takes time and changes don’t take place overnight.
So even if the tech becomes successful, it may be a while before it grows roots. And no one knows which tokens will be left standing by the time cryptocurrency has a more practical use case.
Are there less volatile ways to invest?
If you’re dead set on getting exposure to this world, it’s worth considering a stock within the space such as Coinbase (COIN). By investing in cryptocurrency infrastructure rather than specific tokens, you could stand a better chance of coming out on top.
What’s even better is that when you invest and buy shares, you can also use a stocks and shares ISA. This can protect your gains from tax and make things much simpler than if you were trading digital tokens on a regular basis.
All investing carries some risk, but if you’re new to the markets, it can be dangerous to head straight towards the most volatile and risky investments. So always invest with caution and understand that you may get out less than you put in.
Investing in Cryptocurrency is extremely high risk and complex. The Motley Fool has provided this article for the sole purpose of education and not to help you decide whether or not to invest in Cryptocurrency. Should you decide to invest in Cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.
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About the author
George is a writer and qualified financial adviser focused on educating others in personal finance & investing.
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