There was blood in the crypto streets yesterday as increased FUD extended the price landslide of the overall market. An influx of negative news such as China’s extended crackdown on Bitcoin mining and misleading headlines about the bear market kicking in full force further escalated the sell-offs.
The FUD was so much that the total cryptocurrency market cap dropped from more than $1.5 trillion on Sunday to a low of $1.15 trillion on Tuesday during the big dip. Fortunately, there has been some market correction and the market cap is back above $1.3 trillion, and on its way to some more recovery.
The latest crypto market performance likely spoofed many weak hands, encouraging them to sell to avoid further losses in case the market continues to extend its bear phase. Meanwhile, the downward spiral provided an opportunity for enthusiastic traders to accumulate more. FUD is one of the major reasons for the highly volatile nature of the crypto market and it is not the first time such price movements have happened.
Cryptocurrencies are still in their market correction phase after an impressively bullish performance in the first half of 2021. Some market experts believe that the 2021 bullish cycle is not over yet and that the latest bearish performance is just an expected correction. Understanding the market provides a much better view and a more accurate prediction of when the market will change direction.
The cryptocurrency market’s performance follows a four-year cycle that is heavily correlated to the Bitcoin halving which takes place every four years. Bitcoin’s last halving happened in May 2020, around the same time that the market started gaining momentum. The current bull market is thus expected to peak during the summer or fall, and will subsequently be characterized by a huge drop in crypto prices.
However, the current bull market might potentially continue due to more adoption and projects designed to replace traditional finance. The rising inflation in many countries due to excessive money printing may also play out well for the crypto market as has been the case in the last few months.
Buying the dip and FOMO
There have been other dips in the past but some recovery always follows and this has been the state of the market for the last few weeks. The bull market is expected to continue and as such, the dips present opportunities for buying digital assets at discounted prices. This is especially a good idea for traders who leverage dollar-cost averaging. For example, Bitcoin whales have been waiting for the cryptocurrency to close in on the $30,000 price level with the expectations of a substantial profit when it reaches its previous historic highs.
It always a good idea to exercise caution because there are too many uncertainties involved. Remember that the cryptocurrency market is a double-edged sword and prices might drop substantially as was the case in the last few weeks. The fear of missing out (FOMO) on the dips should not push you to impulsively put all your money into cryptocurrencies.
The problem is that one cannot really tell exactly when prices will bottom out, which means there is some risk of getting into a trade at the wrong time. For these reasons, you should avoid investing money that you are not willing to lose or money that is essential for your daily needs. It would also be wise to invest in cryptocurrencies that have specific use cases. For example, some cryptocurrencies can be used for staking where holders can earn rewards and interest as they hold. Such utility provides an incentive to invest in such cryptocurrencies.