The meteoric crash of the TerraUSD and Luna cryptocurrencies resulted in severe consequences for not only its investors but the crypto ecosystem at large.
It is estimated to have wiped half a trillion dollars (over US$500 billion) off the sector’s market capitalisation as it imploded virtually overnight.
Many investors lost their entire life savings and the whole situation is so dreadful judging by how suicide helplines around the world are posted on u/TerraLuna, a Reddit forum dedicated to the Luna cryptocurrency.
This turn of events has shaken the crypto industry so badly that many players have called it the next ‘Crypto Winter’.
Arrival of the Crypto Winter
The term “Crypto Winter” refers to a period of flat trading after a price crash. The last crypto winter was from early 2018 until mid-2020 whereby the value of cryptocurrencies plunged and layoffs were rife.
Evident of how the crypto winter is already here – Bitcoin has lost around 60% of its value since reaching an all-time high of US$69,000 in November 2021 and is trading below US$30,000 (a key support level) at the time of writing.
In fact, Gemini billionaire founders announced on 2nd June 2022 that the industry is already in a contraction phase known as the “crypto winter”, exacerbated by the current macroeconomic and geopolitical turmoil”.
As such, they announced they would be cutting 10% of its staff at Gemini, the US-based cryptocurrency exchange founded eight years ago. It is the first time the company has cut jobs.
Listed company Coinbase which reported a 27% fall in first-quarter revenue, has also extended its hiring freeze “for the foreseeable future” and rescinded some offers.
It is now apparent that the has affected everyone involved adversely and may be lingering on for a while. That being said, all hope is not lost.
According to a survey done by Moneycontrol, many crypto investors lamented on how they have gone slow on their investments given the bearish cycle but exiting the crypto market altogether is not on the cards.
In fact, they remain bullish on the de-facto crypto king – Bitcoin and think it can make a comeback due to 2 main reasons.
1. Bitcoin Dominance
Despite the poor crypto market sentiment, there are some signs that the crypto king is able to make a stronger comeback.
First of all, investors have been shying away from altcoins ever since they are perceived as “risky assets” following the collapse of TerraUSD in early May.
However, Bitcoin held up relatively well against other cryptocurrencies because it provided a ‘safe harbour’ for the crypto community due to its relative stable stature.
As a result, Bitcoin dominance – a measure of the ratio between Bitcoin’s market cap to the rest of cryptocurrency markets, has leapt to a nine-month high of over 45% even as its price has decreased.
One interesting thing to note is how Bitcoin has historically been dominant during bear cycles, but it tends to make way for other ‘riskier’ altcoins such as Ethereum and XRP in bullish market conditions.
2. Increased Crypto Adoption
The size and scope of the cryptocurrency industry has increased significantly over the past 12 months with worldwide crypto adoption jumping by over 800% in 2021 alone.
Moreover, crypto adoption is getting another leg of growth from the increased acceptance of cryptocurrencies by many mainstream businesses like Microsoft and Starbucks.
A good example is how Italian luxury brand Gucci is also jumping on the bandwagon to accept payments in cryptocurrencies such as Bitcoin, Ethereum and Litecoin in America.
With a rapid rise in popularity and usage of cryptocurrencies, it also triggered many financial institutions such as banks and hedge funds to integrate cryptocurrencies into their business models.
On this note, banking behemoth Goldman Sachs has announced on April 2022 that it was offering its first ever Bitcoin-backed loan in a significant expansion of its crypto footprint.
Bitcoin is usually the digital asset that is adopted when many institutions want to dip their toes for the first time due to its huge global reputation.
In fact, on a grander scale of things, 3 countries (El-Salvador, Panama and even Ukraine) have already legalized Bitcoin and passed significant regulatory bills on the cryptocurrency.
The law allows for cryptocurrencies to make significant inroads for the respective countries, from allowing blockchain companies to legalise individual business processes, acceptance of the cryptocurrencies as payment methods and free trading of cryptos by the citizens.
Conclusion – Be contrarian in times of market volatility
I get it – many people are staying out of the crypto markets after seeing their wealth eroded and confidence ‘bruised’ by the whole Luna episode.
Then again, we can also take comfort when we see how multi-national corporations and huge countries are continuing to adopt cryptocurrencies especially Bitcoin.
The mega-trend surrounding cryptocurrencies and its blockchain technology cannot be disputed and as investors, we need to be contrarian in times of market volatility.
Warren Buffett famously said this quote:
Be fearful when others are greedy, and greedy when others are fearful
This is perhaps a sign for us to stay the course and be bullish when everyone else are running away from the crypto markets.
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Disclaimer: Cryptocurrencies are exposed to high intra-day price volatility, which may be substantially higher compared to other financial instruments.
