Here’s Why Crypto Is Correcting ... And Why It’s Temporary

Last week, I was at my son’s friend’s birthday party, and one of the dads there brought up crypto.

We were discussing various coins when another parent overheard and broke into the conversation. “I hope you guys don’t own any bitcoin, because that thing is crashing hard!” he said with a grin.

I nodded politely and acknowledged that crypto is going through a rough patch, with prices correcting practically across the board.

Then I asked the other dad if he knew what a bitcoin cost a year ago. He didn’t.

So I told him that bitcoin was trading for around $948 one year ago. And that despite the recent pullback, bitcoin is still up around 9X to 10X over the last 12 months.

The entire crypto market, as tracked by Coinmarketcap, has risen from around $15 billion early last year to around $400 billion today.

I don’t know of any other asset that even comes close to these returns. And the further back you go, the more insane the returns get. When I first bought in the spring of 2013, bitcoin was trading for $84. And it had just run up to that price from around $5 only months before.

My point is that if you paid attention only to mainstream news sources, you might think bitcoin was trading at multiyear lows. It’s “crashing,” “plummeting “… it “won’t survive.”

I believe this pullback is completely natural. Here’s why…

A Natural (Yet Nasty) Correction

I look at the crypto market like this: 15 steps forward, nine steps back.

When an asset increases in value 20X, as bitcoin did last year, it’s only natural for some owners to take profits. Others who bought in at $15,000 or $19,000 are likely panic-selling.

This is simply how markets operate. Weak hands are shaken out during these times.

Yet a significant portion of the investors who bought in over the last year will hold strong. And they will continue to hold for years because historically, that’s the most proven way to make money in crypto. This is the sturdy base of crypto owners, and it continues to grow steadily.

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Eren Solu 1 year ago Member's comment

Very Insightful

Currency Trader 1 year ago Member's comment

Michael Molman, this is the #crypto article I was telling you about.

Flat Broke 1 year ago Member's comment

South Korea is banning anonymous cryptocurrency trading? That's news to me. How would that even work?

Would bitcoin for example allow a buyer to be anonymous in one country but not in another? If they want to allow for crossborder commerce, then the company would need to know the identity of all of it's users. That would likely turn off many who purchased cryptocurrency in the first place. It might even cause a mass selloff.

Would love to learn more about this.

Bill Johnson 1 year ago Member's comment

Adam Sharp, I enjoyed your article and you make some excellent points. And yes, those who purchased bitcoin years or months ago, have made a killing. I'm not saying that a crash is imminent But how much higher can it really go? I feel that the valuation is becoming irrational... a telltale sign of a fad. Would it truly be wise for those new to crypto to get in for the first time now?

Angry Old Lady 1 year ago Member's comment

Bill, this is an excellent point. Adam Sharp, how would you address Bill's criticism?

David Haggith 1 year ago Contributor's comment

Is getting clarification on gov't regs when "clarification" means getting regulated actually going to boost cryptos? It will, if it is effective, bar a lot of corrupt activity that is likely happening in the crypto market now (such as price rigging?) and may take away a few customers who use crypto to evade the law (such as to evade taxes or to launder money). Regulations will seek to cover all those things, which will reduce the number of customers and the number of transactions while increasing the cost of managing cryptos.

Nathan Feifel 1 year ago Contributor's comment

The impact of your point, which is well taken, could arguably be offset by the influx of new investors who were withholding due to deregulation until this point. I personally know countless individuals who refuse to own crypto because of this reason alone. Should regulators get involved, the market will likely gain more legitimacy and an injection of new capital.

Michele Grant 1 year ago Member's comment

I'd agree with this point 100%. My main reasoning for rejecting #cryptos is the lack of regulation and no protection from hackers, such as FDIC protection.

David Haggith 1 year ago Contributor's comment

Good point. It can turn the market from leaning toward being a black market to being a mainstream out-in-the-daylight market. Right now, a lot of people are afraid to get involved because it is unregulated, prey to hackers, and obscure.

Michele Grant 1 year ago Member's comment

Agreed.

Currency Trader 1 year ago Member's comment

As I've mentioned on previous articles, I don't see how government regulation fits into the #crypto world. The whole reason #cryptocurrency took off is because so many people (not just criminals) wanted a #currency that was annoymous and not controlled by any governments. If you get rid of these fundamental pillars, what's left? Paypal?

I'm more focused on traditional currencies so if I'm missing something critical in my thinking, please enlighten me. Thanks.

Currency Trader 1 year ago Member's comment

BTW, there was a more indepth discussion on the #robinhood angle here which I also just commented on:

www.talkmarkets.com/.../fintech-startup-robinhood-announces-it-will-support-cryptocurrency-trading

Nathan Feifel 1 year ago Contributor's comment

Thanks for the share!