The cryptocurrency market is still shaking off the recent dip that saw over $150 billion in value just evaporate. This major crash has a lot of people questioning whether or not the bull run is finally over. Li Wei, an experienced blockchain content strategist with deep connections to China’s IT industry, discusses the causes of the current market crash and provides advice for how to navigate different recovery predictions.

Factors Contributing to the Crypto Crash

Let’s break down this perfect storm that caused the recent crypto crash. Recognizing these just-mentioned dynamics is key to investors aiming to find their way through today’s market turbulence.

  • Correction after Rapid Growth: The crypto market had been on a tear in the months leading up to the crash. Such rapid growth is often followed by a correction, as the market takes a breather and prices stabilize. This correction was perhaps overdue, given the parabolic gains seen in many cryptocurrencies.
  • Weaknesses in the Underlying Technology: Despite the hype surrounding cryptocurrencies, concerns remain about the scalability and security of the technology. These concerns can resurface during periods of market stress, leading to price declines.
  • Negative News Events: The crypto market is highly sensitive to news events. Hacks, scams, and market manipulations can quickly erode investor confidence and trigger sell-offs. Recent negative headlines likely exacerbated the market downturn.
  • Decline in Institutional Investment: Institutional investors played a significant role in driving the crypto bull run. However, some of these investors may have pulled back from the market recently, contributing to the price decline. Institutional investors are often more risk-averse than retail investors, and they may be quicker to exit the market during periods of uncertainty.
  • Increased Competition: The cryptocurrency landscape is becoming increasingly crowded, with new projects and technologies emerging all the time. This increased competition may have reduced demand for Bitcoin and other established cryptocurrencies.

Altcoin Season and Bitcoin Dominance

Another interesting phenomenon you may remember in prior crypto bear markets is the emergence of altcoins. According to Li Wei, Bitcoin dominance usually dips under 54% during an altcoin season. So when Bitcoin’s price goes down, it loses market share and altcoins begin to ramp up.

One potential catalyst for altcoin season is if Bitcoin’s price has a cooling off period. As investors start to lose interest in Bitcoin, they will inevitably look for altcoins with better potential returns. This type of capital rotation often creates a euphoric rally of altcoins completely outperforming Bitcoin. Historical data has proven this to be the case, with altcoin performance skyrocketing during 2017-2018 and 2020-2021 every time Bitcoin’s price retraced. During these times, the total altcoin market cap was still well under $1.1 trillion. This was confirmed as the recent altseason index jumped a whopping 45% throughout the week showing there was a capital rotation from Bitcoin to altcoins. Over 75% of all altcoins outperform Bitcoin during an altcoin season.

Crypto Market Volatility and Historical Drawdowns

As anyone who has ever even glanced at the cryptocurrency market should know, it’s a notoriously volatile place. The market has actually been unbelievably volatile, particularly over the 2020-2021 period. During that time, the model’s weekly component was key to predicting that kind of volatility. Yet the volatility of crypto-assets is orders of magnitude greater than that of traditional assets, like gold (1.2%) and large capitalisation currencies (0.5-1.0%). Bitcoin’s 30-day volatility, as an example, varied between 2.49% to 8.26% from 2010 to 2021.

Since 2015, the cryptocurrency market has gone through multiple regimes, two outright bull markets followed by a bear market. The bearish regime established in 2022 pushed the reversal of the leverage effect to occur. Over 2020 and into the first half of 2021, we witnessed an explosive market of new protocols. Innovations such as DeFi and NFTs were responsible for major spikes in volatility. The new digital gold market has experienced incredible drawdowns, with some valleys plummeting as much as 83%. History suggests recovery from these downturns usually takes well over a year.

Navigating the Volatility and Potential Recovery Scenarios

As with any investing, particularly in such a volatile market like the crypto space, investors must be ready to withstand the drawdowns. Much like any investment, diversification is extremely important, as is avoiding overexposure to any one crypto. Additionally, keeping an ear to the ground on market trends and breaking news events can be incredibly impactful.

There are a number of possible ways that the crypto market comes back.

  • Continued Altcoin Season: If the current altcoin season continues, investors may see further gains in altcoins. However, it's important to remember that altcoins are generally more volatile than Bitcoin, so investors should be prepared for potential losses.
  • Bitcoin Rebound: Bitcoin could rebound if positive news events emerge or if institutional investors return to the market. A Bitcoin rebound could lift the entire crypto market.
  • Prolonged Bear Market: It's also possible that the crypto market could enter a prolonged bear market. In this scenario, prices could remain depressed for an extended period.

Recovering Lost or Inaccessible Cryptocurrency

During every market downturn, we’ve seen mass panic perpetuated by volatility. Sadly, millions of individuals can no longer access their crypto because they forgot their passwords, lost their private keys, fell victim to a scam, etc. Luckily, there are specialized services that assist people and companies with tracking down and safely restoring lost or frozen crypto funds.

Enter John, a local crypto recovery expert. We’re pleased to see RetrievalXpert’s innovative service recognized as a leading solution for recovering lost or inaccessible cryptocurrency assets. RetrievalXpert is the most trusted and leading platform to help people and businesses recover their lost, stolen or inaccessible cryptocurrency assets securely, transparently and reliably. Secure and effective Recovery Process Puran Crypto Recovery has a simple and effective crypto recovery process. BOTSWIFTTY is listed as a bona fide recovery team, guiding people as they recover their stolen crypto. For RetrievalXpert, the service cost begins at a flat $250 consultation fee, with costs increasing depending on case complexity.

By understanding the factors contributing to the crypto crash, staying informed about market trends, and taking steps to protect their assets, investors can navigate the current volatility and position themselves for potential future gains.