The year 2021 brought more than $2 billion (£1.47 billion, €1.76 billion) in inflows into the cryptocurrency market, but $1 billion of that amount has already been lost. As 2022 progresses, the market seems a bit more stable… so has the crypto crash peaked or is it likely to resume in 2022?
The cryptocurrency market exploded as money poured into the markets: at the start of 2021, the total market capitalization was below $800 billion, but by November it had reached $3,000,000,000. But as monetary policymakers grew more hawkish, the market was hit by outflows that pushed the market capitalization back below $2 trillion.
Where does he go from here? Some market watchers predict its trajectory based on historical parallels.
Bitcoin (BTC) and the rest
In 2021, bitcoin’s market dominance – or its share of cryptocurrency market capitalization – has halved, as a plethora of new crypto projects and new products such as non-fungible tokens (NFTs) ) flooded the market.
Bitcoin started the year with a market share of 70%, which fell to 39.5%, which is a three-year low.
Analysts at cryptocurrency intelligence firm CryptoCompare believe that this year the wheat will be separated from the chaff.
In one report, the authors of CryptoCompare wrote, “New projects that expand crypto use cases will cause bitcoin dominance to decline, while non-value added projects will eventually capitulate and cause bitcoin dominance to rise. .
“So an intriguing question to ask a market without a blowout is by what mechanism will nonperforming assets cease to receive funding?”
Historically, when market hype was followed by a blowout, the “weeds” of the market were temporarily hit, as in the examples below; this year may well reveal a similar trajectory.
The boom of 2017 / the recession of 2018
Bitcoin saw its dominance wane in 2017 during a period of hype around a horde of initial coin offerings (ICOs). This was followed by the BTC crash of 60%.
“There were incredibly important projects. However, they were very rare – only a few meaningful projects per year,” writes Paul Veradittakit, blockchain and cryptocurrency investor at Pantera Capital.
“By the end of the year, we were receiving 50 white papers a week. Obviously, it’s impossible to come up with 50 great ideas every week, every week. Most of these projects were not useful,” he adds. “The market didn’t know that yet. A huge amount of money was poured into it.”
Bitcoin – the oldest cryptocurrency on the market – started 2017 at $921 and ended it at $13,062. In February 2018, BTC was trading in the $7,000s.
Seasoned market watchers will be aware of market cyclicality, where bearish and bullish moves repeat after four years. Could history repeat itself?
The dot.com crash of the 2000s
“It is important to note that this dynamic is not necessarily applicable only to crypto – the dot.com bubble burst of 2000 saw an abundance of poor internet companies collapse,” CryptoCompare analysts say.
During the so-called dot.com bubble era from the mid-1990s to 2002, the hype surrounding Internet companies brought large influxes into the emerging industry. The boom was followed by a crash, and in 2002, shareholders had lost some $5 billion.
Some companies have disappeared, but several of those whose business models have been successful enough to survive have emerged from the collapse to become some of the largest companies in the world by market capitalization.
CryptoCompare analysts comment: “Internet companies such as Amazon, which at the time proved to add value to the ecosystem, were badly harmed in the explosion, but still managed to survive and to persevere. Amazon saw a 95% drop in its stock price from its 1999 high to its 2002 low.”
Read more: Why did the cryptocurrency market lose $1,000,000,000 in two months?
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