We’re seeing a cascade of selling in crypto markets. It’s been ugly out there.
But there are signs we may be nearing a bottom… and that we could be at “peak sell-off.”
This correction has been broad-based and indiscriminate. Every coin I track has been affected.
But for this analysis, I’m going to look at bitcoin as a market gauge, since it has the longest track record and remains an important bellwether in the crypto world.
The chart below shows the largest drops in bitcoin’s history. As you can see, the three most recent “crashes” in bitcoin have topped out at 70%, 70% and 63%.
As I write this, bitcoin is trading around $6,800. So we’re looking at a roughly 63% drop from the recent all-time high. A rough correction, no doubt.
But we are reaching a retracement point where, historically, a bottom forms.
Regarding the first (and nastiest) correction on the chart, I don’t believe it has any relevance whatsoever to today’s market. That was in 2011, during bitcoin’s infancy. There were no reputable exchanges then, and liquidity was tiny.
So if you believe in the long-term fundamentals of cryptocurrency (as I do) and have been waiting for a chance to buy the dip, now seems a fine time to do so across our recommendations.
If you’re already in, I continue to recommend holding and buying the dips if you’re using a dollar cost averaging strategy. Avoiding panic-selling is not easy at times like these. But holding remains the best way to make money in crypto over the long term.
Taking a Step Back
You may be getting tired of hearing this, but we do need to keep in mind that the overall cryptocurrency market has grown from $19 billion one year ago to more than $300 billion today. It’s still a monumental growth story.
This correction has been rough, but it will pass. There is still massive global demand for independent money. So much demand, in fact, that many crypto exchanges have been forced to stop accepting new users.
Exchanges were designed to scale. It’s one of the most attractive aspects of their business model. Yet even with the inherent scalability of their web-based businesses, they can’t keep up with demand.
Bittrex, for example, has still not yet reopened the doors to new customers. It’s forfeiting millions of dollars per day simply so it can keep up with demand from existing clients. What does this tell you? People want crypto.
Yet behind the scenes, exchanges are busy building out their infrastructure and expanding their reach. Just this week, Bittrex announced it will soon allow U.S. dollar trading. This means it will be competing directly with Coinbase and will no longer be a “crypto only” exchange. In addition, founder Bill Shihara said it would soon reopen new account sign-ups.
For more information on the exchange growth problem, be sure to check out my most recent article on EarlyInvesting.com. I believe this is one of the most overlooked factors contributing to this correction.
Once Bittrex and other exchanges open the doors back up, demand for promising coins should once again rise.
Fiat Money Is (Still) Slowly Dying
Fiat monetary systems, crypto’s primary competition, are still faltering worldwide… still slowly spiraling out of control. The EU’s debt problems aren’t getting any better, and the union seems destined to dissolve in the long run. The U.S.’s balance sheet is still growing out of control.
Everywhere, it seems, debt is skyrocketing. On consumer, government, state and local levels.
Central bank money-printing operations are going full steam. And while interest rates are inching up, they remain near record lows. In addition, U.S. savings rates just hit a 12-year low.
The problems with centralized monetary systems, the ones that have been forced on all of us, are insurmountable.
So as I often advise during times like these, try to think years out into the future.
More financial crises seem inevitable. More money printing is inevitable. More wasteful government spending is inevitable.
Cryptocurrency is the alternative the world needs. This is truly crypto’s “killer application” – protecting the savings of individuals from government and central bank recklessness. This hasn’t changed. What we’re seeing is a new market struggling with growing pains and undergoing a sharp correction.
Meanwhile, many of the brightest programmers, entrepreneurs, investors and developers in the world are hard at work improving crypto infrastructure.
This is why I’m holding, and why I recommend you do the same.
Good investing,
Adam