This 2022 is not being easy for cryptocurrencies. So far this year, according to CoinMarketCap, the two cryptocurrencies with the largest market capitalization, Bitcoin (BTC) and Ethereum (ETH), which account for approximately 60% of the entire cryptocurrency market ($481 of $851 billion). ), have fallen by 63.34% and 65.90% respectively.
To better understand the cycles of the cryptocurrency market, I will focus on Bitcoin since it was the first cryptocurrency, it represents almost 40% of this market and its fluctuations have a great impact with the rest of the cryptocurrencies.
No, it is not the first time that Bitcoin falls more than 63.34%; this has already happened twice since its creation in 2008. To go into more detail, let’s understand what is a cryptocurrency and what is a Bitcoin.
A cryptocurrency is a form of digital money that can be transferred from one place to another without having to go through a bank or a central institution, that is, the transactions are carried out without any intermediary.
In 2008, Satoshi Nakamoto published a document called “Bitcoin: A Peerto-Peer Electronic Cash System” where he explained the operation of a decentralized network, using Bitcoin as a value transfer method.
Among the main properties of Bitcoin, it stands out that there will be a limited amount, 21 million BTC (there are currently 19.22 million of these coins in circulation). The other property is that the issuance of BTC is programmed to be deflationary, that is, as time goes by, less BTC is produced until it reaches 21 million. This is done through an event on the Bitcoin network called the Bitcoin Halving, which happens every four years, and what happens is that BTC production halves.
The halving has been celebrated three times – in the years 2012, 2016 and 2020 – and has marked the bullish (when prices go up) and bearish (when prices go down) cycles in the cryptocurrency industry and trade as a whole. The next halving meeting is scheduled to take place in early 2024.
In November 2012, the price of a BTC was $10 and reached $1,000 in January 2014, when it began to drop until early 2015 to $150 (-85%). In July 2016, the price of BTC was $650 and reached $20,000 at the end of 2017, then its value fell to $3,500 (-82.5%) in December 2018. In May 2020, the price of BTC it was $9,500 and at the end of 2021 BTC reached a new all-time high of $68,000.
As of today, BTC and ETH have fallen 75% and 73% respectively from their all-time highs reached in November 2021. This means that cryptocurrencies have been in a bearish cycle for more than a year that translates into fear and uncertainty.
Last month, the second largest cryptocurrency trading platform (by daily volume) called FTX – which was once valued at $32 billion – filed for bankruptcy along with its sister company Alameda Research due to insolvency issues ( owe around 10 billion dollars) to more than a million users.
This has caused other companies, such as BlockFi, to file for bankruptcy a few weeks later, and companies such as Genesis could also be experiencing problematic situations.
These have not been the only companies in the sector that have gone bankrupt this year. In the middle of 2022, Three Arrows Capital, Voyager Digital and Celsius filed for bankruptcy as a result of the fall of the Luna cryptocurrency.
Probably the next few months will not be easy for this sector. As a consequence of everything that has happened this year, countries will possibly put a greater focus on regulating investment in these digital currencies.
Today cryptocurrencies are in a stage of growth and adoption, and this brings volatility as a consequence, since it is a very incipient market. According to Crypto.com, there are 295 million people around the world using cryptocurrencies, which represents 3.68% of the world’s population.
Only time will tell what will happen in the world of cryptocurrencies. What we must understand and I have tried to explain is that, as with other sectors, they move in cycles and it is still a very young market. Personally I think that in the sector the phrase of Mark Twain should be taken into account now: “History does not repeat itself, but it rhymes”.
