Is there a way for the crypto sector to avoid Bitcoin’s halving-related bear markets?


There are good reasons to be afraid. Previous downward markets have experienced declines of more than 80%. While tight hodling may be wise among many Bitcoin maximalists (BTCs), altcoins speculators know that diamond delivery can mean near (or total) annihilation.

Regardless of the investment philosophy, in risky environments, participation flees space in a hurry. The purest of us could see a silver lining as devastation clears the forest floor of weeds, leaving room for the strongest projects to flourish. Though, no doubt, there are many lost dumb ones that would grow to great heights if given the chance.

Investment and interest in the space of digital assets are water and sunlight for the fertile ground of ideas and entrepreneurship. Less severe declines serve the market better; better a garden than a desert.

A brief history of bearish crypto markets

To solve a problem, we must first understand its catalyst. Bitcoin and the wider digital asset space have survived several bear markets since its inception. According to some accounts, by definition, we are currently at number five.

The five bearish Bitcoin markets. Source: TradingView

The first half of 2012 was full of regulatory uncertainty that culminated in the closure of TradeHill, the second Bitcoin exchange. This was followed by hacking of both Bitcoin and Linode, which resulted in the loss of tens of thousands of Bitcoins and a 40% drop in the market. and the default values ​​of the Bitcoin Savings and Trust Ponzi Scheme collapsed the price once again, dropping 37% ¹.

Enthusiasm for the new digital currency has not been suppressed for long, as BTC has risen again to find the balance around $ 120 for most of the following year before rising to more than $ 1,100 in the last quarter of 2013. E , just as dramatically, the DEA’s takeover of the Silk Road, the Central Bank of China’s ban and the scandal surrounding the closure of Mount Gox plunged the market into a brutally prolonged 415-day setback. This phase lasted until the beginning of 2015, and the price went up to only 17% of the previous maximums of the market.¹

From there, growth was steady until mid-2017, when market enthusiasm and mania launched the price of Bitcoin to the strata, peaking in December at nearly $ 20,000. The eager takeover, more hacking and rumors of asset-banning countries once again crashed the market and BTC languished for more than a year. 2019 brought a promising climb to nearly $ 14,000 and largely exceeded $ 10,000 until pandemic fears dropped to BTC below $ 4,000 in March 2020. 1,089 amazing days passed, almost three full years, before the cryptocurrency market will recover its maximum of 2017².

But then, as many in space recalled, the money printer was “brrrrrr.” Global expansionary monetary policy and fears of fiduciary inflation have fueled an unprecedented rise in asset values.

Bitcoin and the largest cryptocurrency market have found new holdings, surpassing nearly $ 69,000 per BTC and more than $ 3 trillion in total asset class market capitalization at the end of 2021.²

Total decline in cryptocurrency market capitalization. Source: TradingView

As of June 20, the liquidity of the pandemic has dried up. Central banks are raising rates in response to worrying inflation figures, and the largest cryptocurrency market represents a relatively scarce $ 845 billion total investment. which correspond to a more mature market. . Undoubtedly, this is mainly due to the inclusion and speculative craze around high-risk startups that make up between 50% and 60% of the total capitalization of the digital market.

However, altcoins are not entirely to blame. The collapse of 2018 caused the price of Bitcoin to fall by 65% ​​⁴ Growth and the adoption of the apex asset of cryptography have caused regulatory alarms in many countries and questions have arisen about the sovereignty of national currencies.

How to mitigate risk in the market?

Therefore, it is risk, of course, that drives this volatility downwards. And, we are in a risky environment. Thus, our fragile young garden withers first among the most deeply rooted asset classes of the convention.

Portfolio managers are well aware of this and are required to balance a portion of the cryptocurrency investment with a larger portion of safe haven assets. Both retail and professional investors often leave their bags completely at the first sign of a bear, returning to conventional markets or money. This reactionary strategy is seen as a necessary evil, often at the expense of incurring short-term capital gains tax, and runs the risk of losing significant unpredictable reversals, which are preferred to the devastating and prolonged declines of the cryptographic winter.

Should that be the case?

How does an asset class so driven by speculative promise reduce risk enough to keep interests and investments alive in the worst of times? Heavy cryptocurrencies in Bitcoin do better, comprising a higher percentage of the least volatile of major assets. Still, with a 0.90+ correlation of Bitcoin with the altcoin market, the wake of the most dominant currency in the cryptocurrency often serves as a diversion for smaller assets trapped in the same storm.

BTC correlation with Ether and all altcoins. Source: Arcane Research

Many flee stable currencies in terrible times, but as Earth’s recent disaster shows, they are fundamentally more at risk than their fiat peg. And, tokens paired with commodities are loaded with the same concerns inherent in any other digital asset: trust in either a market or its organizational entity, regulatory uncertainty, and technological vulnerabilities.

No, just tokenizing safe haven assets will not provide stable yang to the volatile yin in the crypto market. When fear is at its peak, a reverse price ratio, not just neutrality, must be achieved to retain investment in cryptography and with a return that justifies the adoption of this inherent risk.

For those who want and can, the inclusion of reverse Bitcoin exchange traded funds (ETFs) offered by BetaPro and Proshares provides coverage. However, like short positions, accessibility barriers and tariffs make these solutions even more unlikely to keep the average investor in the bear market.

In addition, increasingly regulated and compliant centralized exchanges are making leveraged accounts and cryptocurrency derivatives unattainable for many in large retail markets.

Decentralized exchanges (DEX) suffer from the limitations of anonymity and the solutions offered for short-circuit mechanisms on these have largely required a centralized exchange to work collaboratively. And, more specifically, both solutions functionally do not support value retention directly in the cryptographic market.

Are cryptographic safe haven assets sufficient?

The solution to the mass exodus of investment in the crypto bear market must be found in the assets themselves, not in their derivatives. Avoiding the inherent risks mentioned above may be impossible in the medium term. But, regulatory clarification is promised and debated around the world. Centralization and technical risks are finding new mitigations through decentralized autonomous strategies and the commitment of an increasingly demanding investor in cryptography.

Through many experiments and trials, cryptographic entrepreneurs will continue to bring real solutions to the forefront. Applications of blockchain technology that find substantial adoption in lower-market “defensive” industries, such as healthcare, utilities, and the purchase or production of consumer commodities, would provide an alternative to leakage. This development must be encouraged in these times of uncertainty. Rather, by the wisdom of the market, such uncertain times should encourage this development.

However, ingenuity should not be limited to merely representing the weak solutions of conventional markets. This is a new world with new rules and possibilities. Programmatically incentivized reverse mechanisms are feasible, after all.

Synthetix reverse synthesizers aspire to do just that, but the protocol sets a minimum price and a maximum price, in which case the exchange rate is frozen and only interchangeable on your platform. the largest cryptographic market. True solutions will be widely accessible both geographically and conceptually. Instead of providing just a dry place to wait for the market storm to go down, cryptographic solutions should provide a return to justify the risk still inherent in our developing asset class.

Is there a positive side to the bear market? Will crypto winter survivors emerge in a more rewarding market for application and adoption than speculation? Healthy pruning may be what our new garden needs; a prolonged drought is surely unnecessary. Downstream markets are simply a problem and, with clever application of blockchain technology, hopefully soluble.

Exemption from liability. Cointelegraph does not endorse any product content on this page. Although our goal is to provide you with all the important information we can get, readers should do their own research before taking any action related to the business and take full responsibility for their decisions, nor can this article be considered investment advice.

Trevor is a technology consultant, entrepreneur, and director of Positron Market Instruments LLC. He has consulted with corporate planning teams in the United States, Canada, and Europe, and believes that blockchain technology promises a more efficient, fair, and egalitarian future.