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After the massive success back in 2021, the global cryptocurrency market has not been in very good shape this year so far. The crypto sector has lost over two trillion dollars in the past couple months with many of the major tokens tumbling significantly. Bitcoin, worth more than $65,000 back in November 2021, is now trading at $20,000 levels (and even fell below $19,000) these days while Ethereum has lost almost 77% of its worth from its November 2021 highs. Therefore, the only question in the minds of crypto enthusiasts is: Will the crypto market recover in 2022?
Reasons Leading to the Market Crash
Crypto Crash 2022: Will the Crypto Market Recover this Year?
Since the second half of the previous year, financial markets have been impacted by numerous factors such as the four-decade-high inflation, consistently increasing interest rates, the Russia-Ukraine war, and many more. However, several other important reasons had sparked the decline of the crypto markets.
- The market started facing increased volatility when Elon Musk, the CEO of Tesla, decided that they won’t accept Bitcoin as a mode of payment for their products any further. This event had taken place just three months after the company had purchased $1.5 billion of crypto. Tesla justified such a decision was taken because of environmental concerns that are associated with the mining process of the cryptocurrencies. However, this decision had a far-reaching impact on the crypto market and including Bitcoin, many other cryptocurrencies such as Ethereum, Binance Coin, Dogecoin, XRP, and Litecoin also had to face its wrath.
- China’s decision to ban all its banks from offering clients any service associated with cryptocurrencies also had a significant contribution to pulling down the crypto market.
- The recent market selloff of a large number of assets within the short term had a role in pulling down the cryptocurrencies further.
- Last year in July Met Police also seized nearly £180million of cryptocurrencies in a raid in the UK. Also, Binance, one of the largest cryptocurrency exchanges in the world, was banned from operating in the UK. These events hindered investors’ confidence in cryptocurrencies.
- Mining of cryptocurrencies had been banned in Iran for four months as the country faced major blackouts.
- In India, Coinbase managed to anger the regulator on the day of its launch and sucked out all liquidity from the cryptosystem in the country.
Compared to the past few months, there are glimpses of crypto market recovery in the last few days. Bitcoin is holding steady at the $20400 range while Ethereum has gained around 1.6% in the last 5 days. Similarly, other popular coins like Dogecoin have gained close to 12% during the past 5 days and Shiba Inu is up by almost 18% in the last 7 days.
However, these numbers are still significantly low and would need a lot of time to climb back to the 2021 levels.
Will the Crypto Market Recover this Year?
Cryptocurrencies unlike the other forms of investment are still quite speculative. Unlike stocks, they don’t have a proper history to back their performance trend. Bitcoin was the first-ever cryptocurrency that was created in 2009 after the global recessionary market condition was fully over. Therefore, it never had to endure any recessionary market conditions until now as such. For that reason, at this moment it is still difficult to predict whether the market will be able to handle this bearish market condition and recover fully within this year.
However, relying on the fact that many cryptocurrencies have faced such extreme levels of volatility in the past and have managed to survive all through provides a reasonable assurance that this situation too shall pass. For example, Bitcoin had lost close to 80% of its valuation many times in the past years but has always managed to provide positive average returns to its investors. Similarly, Ethereum too had lost almost 95% but still has successfully managed to rebound once again.
Nevertheless, it should be remembered that this satisfactory past performance does not guarantee the round of the crypto market as a whole. This is because even though the market has managed to come out of turbulent times in the past many of the individual currencies have failed to make a successful come back.
What Does the Market Say?
As per traditional financial firms such as Morgan Stanley and Goldman Sachs, full cryptocurrency market recovery might still take some more time until the recession arrives or the fear of an incoming recession gets extinguished completely. They also feel till that time further deterioration in their value might occur.
Some analysts like FxPro’s Alex Kuptsikevich are still not convinced about the continuation of the recent rally that is taking place in the crypto market recently. He feels it is still too early to predict whether any long-term reversal will occur or not as all the negative fundamentals are still intact.
Chris Terry, vice president at SmartFi, has stated there can be an almost 80% retracement in the value of Bitcoin and its price might go down further to the $12,000 to $13,000 range.
Also, Lily Zhang, chief financial officer at Huobi Global, is still bullish about the long-term prospects of the crypto market even though there is a significant level of fear, ambiguity, and hesitation regarding what is going to happen next in the market. Moreover, Zhang feels crypto-focused investors should take advantage of this undervalued market.
Is it Safe to Invest in the Crypto Market Now?
There is a saying “the greater the risk greater will be the return”. The same applies to the crypto market as well. Investing in cryptocurrency does always involve a high level of risk. Moreover, it is also difficult to predict whether their prices will rebound. Still, the chances of crypto market recovery in the coming months exist even today and that might reward the risk-taking investors with unprecedented levels of wealth. So, whether one should invest in the crypto market or not completely depends on their risk appetite and how much money they can afford to lose.
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