Will Crypto Bounce Back?
Will crypto bounce back? This is the question that thousands of cryptocurrency investors around the world are asking themselves. Bitcoin, as the world’s first cryptocurrency, usually serves as a barometer for the entire crypto industry. Right now, Bitcoin is down nearly 70% from its all-time high of $64,400. Other crypto projects, like Luna and TerraUSD have collapsed completely. So, is this the perfect time to double down and buy the crypto dip? Or should you eat your losses and sell the rest of your crypto as fast as you can? Let’s examine.
Will Crypto Bounce Back?
First things first, cryptocurrency is incredibly speculative. Its future is uncertain and nobody is able to predict what will happen with 100% certainty. However, there are a few reasons why I believe that the crypto industry will bounce back. It might not be tomorrow or even by the end of the year. But, eventually, crypto will play a pivotal role in our economy. Here’s why crypto will bounce back:
The industry has been here before: Massive bull/bear runs are just part of the cryptocurrency cycle. Nobody is quite sure why. But you can be certain that this isn’t the first time Bitcoin’s price has collapsed.
- In 2011, Bitcoin’s price fell below $20
- In 2015, Bitcoin’s price fell below $200
- In 2017, Bitcoin’s price fell below $2,000
- And in 2022, Bitcoin’s price fell below $20,000
In each of these scenarios, Bitcoin’s price ascended quickly before dipping back down. On each of these dips, it seemed like the “Bitcoin hype” was over. The fact that this happens fairly often should give investors the confidence to hold through these dips.
Bitcoin’s Price is Relative
When evaluating Bitcoin’s price, it’s important to keep perspective. In 2016, Bitcoin’s price was $450. At the start of 2019, it was $3,700. Today, it’s around $20,000. By this measure alone Bitcoin seems like a massive success. It’s only because Bitcoin rose to $60,000 before dropping to $20,000 that it feels like a failure.
Crypto Still Has a Strong Value Proposition
Despite the drop in price, crypto is still a valuable technology. It is used as a digital currency, community-building apparatus, value holder, digital identifier and much more. On top of that, the industry has experienced several gigantic wins recently. Entire countries now accept Bitcoin as a legal tender. There are public companies based solely on cryptocurrency. And, the world’s biggest investment banks are considering offering crypto services. The crypto industry still has plenty of positive momentum as well as plenty of growth ahead.
The Dot Com Bubble: Crypto Style
When examining the question “will crypto bounce back?” it’s easy to draw comparisons to 2001. In 2001, the market was in the midst of the Dot Com Bubble. During the Dot Com Bubble, hundreds of companies launched brand new internet services. People knew that the internet was going to be “the next big thing.” Surely, any company operating in this space was going to make a killing. It didn’t matter how well these businesses were actually performing.
Internet stocks started to balloon in value. This created thousands of internet investors striking it rich. This, in turn, prompted even more investors to FOMO into internet stocks which caused the valuations to soar even higher. Eventually, the bubble collapsed and the majority of these internet companies went bust.
The Dot Com Bubble was a market frenzy based on a new technology: the internet. It’s possible that the same thing is happening today but with crypto. Here are a few factors that signaled that we were in a bubble:
- DogeCoin: A joke dog-themed cryptocurrency rose 6,000% in a few months. At one point, Elon Musk’s tweets could add/subtract millions from DogeCoin’s market cap.
- NFTs: Many investors and celebrities were spending millions of dollars on digital images. For the record, I’m a huge fan of NFTs and believe that they have a tremendous use case across many different industries. However, the speed at which the market grew and the price that NFTs were selling definitely got a little out of hand.
- WallStreetBets: The abundance of “meme stocks” and retail trading.
From here, we will likely see a much-needed reset in the crypto industry. Some companies will get squeezed out but others will go on to dominate the industry.
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One Bitcoin is Still One Bitcoin
As far as Bitcoin specifically, it is important to remember that it has a fixed supply. There will only ever be 21 million Bitcoins created. Even though the price has changed, the underlying asset is still the same. If you are a believer in the future of Bitcoin then this price drop just means that Bitcoin has gone on sale.
Crypto Isn’t the Only Failing Asset Class
Finally, it isn’t quite fair to focus on crypto when the entire world seems to be spiraling downward. Bitcoin’s price is down about 70% from its all-time high. But, it’s hardly the only one. For reference, here are a few other companies that are down quite a bit from their highs:
- Block Inc: Down 80%
- Snap Inc: Down 85%
- Roku: Down 82%
- Meta Platforms: Down 55%
- Amazon: Down 42%
- Tesla: Down 46%
- Zoom: Down 80%
- Peloton: Down 93%
- Allbirds: Down 80%
- Uber: Down 63%
This list could really go on and on but you get the picture. The Nasdaq index is down about 32%. The S&P 500 index is down 22%. The reasons why things are crashing have much more to do with monetary policy than any of these companies. However, if anything, it’s now clear that Bitcoin isn’t quite the hedge that investors want it to be.
Final Thoughts: Will Crypto Bounce Back?
The crypto industry is going through a much-needed cleansing cycle. Cryptocurrency and blockchain are incredible technologies that have lots of world-changing applications. But the industry was straying from this. Instead of prioritizing meaningful uses, the crypto industry was turning into a casino. People were loading up on DogeCoin, Shiba Inu, or various NFT projects hoping to strike it rich. Hopefully, this market correction humbles the investor base.
In my mind, there’s not a double that crypto will bounce back. The question is really a matter of “when,” not “if.” As far as when the market will bounce back, I can’t say for sure. With so much going on in the world today, I wouldn’t be surprised if it took longer than expected for crypto to bounce back.
Either way, one Bitcoin is still one Bitcoin. Bitcoin’s long-term value proposition is still one of the strongest ever. As long as you have the self-control and means to buy and hold then it’s never a bad time to buy more Bitcoin.
I hope you’ve enjoyed my answer to the question “will crypto bounce back?” Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence.