What’s behind the continued decline in the cryptocurrency market?

Bitcoin, Ethereum, and many other top cryptocurrencies have fallen sharply and are now down nearly 50% from their all-time highs. The stock market has also taken a major hit, seemingly related to COVID and inflation concerns.

The stock market is currently in the midst of a major correction. The Nasdaq Composite fell 7.6% over the past week, its biggest drop since 2020 and the start of the pandemic. Some companies that have seen huge growth from working from home, like Zoom, Peloton, and Netflix, are starting to see demand fall back to pre-pandemic levels. While this may be good for society as a whole, it is certainly bad for these stocks and their prices. Netflix shares fell 21% on Friday following poor earnings.

As society returns to normal, so too will fiscal and monetary policy. The Federal Reserve has been reducing the amount of bonds they buy each month and hinting at rate hikes in 2022, both of which make high-growth tech stocks less attractive because it is now easier to earn higher returns on funds without taking on too much risk.

Most investors view cryptocurrency as a risky tech-related investment, so it’s natural that its price would fall along with tech stocks. In the same week that Netflix fell 20%, the entire cryptocurrency market fell 22% as investors turned to safer assets such as gold, blue-chip stocks and interest-bearing stablecoins.

As long as the tech market continues to crash, it will be difficult for the cryptocurrency market to reach new highs. Over time, as the economy continues to recover and investors regain confidence in riskier assets, cryptocurrencies will once again become a popular investment vehicle. It could take just a few months or it could take years.

Another factor behind the recent decline in the cryptocurrency market is the proliferation of its 4-year bear and bull cycles. For the past 12 years, the crypto market has followed a steady cycle of 3-year bear markets and 1-year bull markets. There were bull markets in 2014 and 2017, both followed by long bear markets. This trend continues in 2021 as cryptocurrencies become mainstream again and hit new all-time highs.

Now, about a year after the bull run began, seasoned investors are worried that history will repeat itself and there will be a “crypto winter” in the next few years. This possibility becomes even more terrifying when looking at the price chart from January 2018, which saw the start of a massive bear market that saw Bitcoin fall from $20,000 to $4,000.

Whether history will repeat itself remains to be seen, and no one really knows what will happen to the market next. Nonetheless, understanding the context and history of market movements is critical to understanding how to best protect wealth. Even if the cryptocurrency market enters a multi-year slump, the fundamentals will not change, developers will continue to work hard, and blockchain will continue to be adopted around the world.