When will Crypto Markets Recover from the Current Bear Phase?

2022 has been quite an eventful year. The world is recovering from a pandemic that forced it to a standstill for the past 2 years, completely modifying existing work models. We are witnessing global inflation on an unprecedented scale. Further, the Russia-Ukraine war disrupted supply chains across Europe contributing significantly to global economics and the loss of human life. The crypto markets reflect an ongoing bear phase, with investors selling their holdings to save profits. We are witnessing what can be described as a domino effect. Bitcoin devaluation, the Luna-Terra stablecoin crash, the current Celsius fallout- the list keeps on growing. The downward descent is however not detracting crypto investors, with a notable percentage of them holding on for leveraging better opportunities. 

The Crypto Descent across 2022

The change across crypto markets has been seismic. Bitcoin started its descent after reaching the all-time high $69k mark in November 2021 and is currently around the $20k mark. Ethereum shared a similar story, dropping from $4.8 k to a current price of $1200. Losses were reflected across other digital assets as well. The stablecoin crash and the failure of DeFi protocols were additional burdens. 

Also Read: The Ideal Web 3.0 Business Outlook During a Global Crypto Market Bear-Stump

The Celsius Bankruptcy Crisis

The Celsius Network applied for bankruptcy after stopping all transactions(withdrawals, deposits, or transfers) for almost a month. While the company filed for Chapter 11 bankruptcy, there is speculation that creditors may not see their investments anytime soon in near future. Recently, the platform was concerned to clear its pending DeFi debt and is likely to have used customer funds to square off. 

The network clears its compound debt of $113 million and is left with assets worth $123 million. In the previous week, the platform cleared its Bitcoin loan, freeing up $453 million in collateral. The repayments were done in USDC and DAI. The total deficit amounted to approximately $1.2 billion. 

Also Read: Crypto Payment Processor BillBitcoins Is Gaining Popularity Among Global Market Firms

Three Arrows Capital Insolvency

3AC landed in hot waters after crypto trade aggregator Voyager Capital served the former with a default notice. The management had failed to repay a part of the $673 million debt from loans across 1520 BTC and USDC worth $350 million. The crypto fund was ordered for liquidation as per court order in the British Virgin Islands. 

3AC had filed for a Chapter 15 bankruptcy in a bid to protect its US assets during the process of liquidation. However, MAS(the Monetary Authority of Singapore) disclosed that the company had furnished false information, handing over its fund management to an “unrelated offshore entity”. The crypto fund was one of the top performers in the last crypto bull run. The founders, Zhu Su and Kyle Davies have disappeared, with several other firms indicating they had loaned capital to 3AC as well. 

LUNA Crash and the Aftermath on Stablecoins

Terra’s LUNA crash was a giant wake-up call for regulators around the world to devise a framework for regulating all types of digital assets, including stablecoins. The LUNA stablecoin eliminates assets worth $60 billion. Now it’s LUNA Classic, with a value equal to zero. The incoming regulations, as per experts, will push the stablecoins further towards the establishment, becoming utility tools in the worldwide economic system. 

However, not all stablecoins have fared as badly. In fact, some stablecoins are on a solid foundation. Moreover, continue to deliver as per expectations. As their name suggests, stablecoins help in stability rather than huge investment returns. Backed by fiat currency reserves, Tether, the world’s largest stablecoin, has a relatively consistent value in comparison to the US Dollar, against which it is backed. The current value is US$ 0.9996.

Macroeconomic Reasons: The Tumbling Global Economy

The losses are however due to macroeconomic factors. Not only crypto, markets all over the world, fell sharply. Examples include the NASDAQ Composite, which decreased by 4.68%. The Dow Jones Industrial also reflected a 900-point drop. Several tech stocks had fallen to a quarter from their previous year’s highs. Analysts suggest the global economy is the main responsible factor, and this certainly makes sense.

The economic crisis has spiraled out of control in nations like Sri Lanka, where the government has already failed. Other nations following suit include Pakistan. China is currently facing a liquidity crisis. Several other factors have halted global economic development, including the devaluation of the Euro vs the Dollar. The US is facing a 9.1% inflation, which is also soaring across nations like Canada, Europe, India, China, and Australia. The purchasing power reflects a negative trend, indicating a global bear market phase. 

It is easy to observe the effects of central banks raising interest rates, growing inflation, and unemployment. All these combine to bring down asset valuation. Moreover, the same shows across Bitcoin and other digital assets. Cryptocurrencies still need to grow in order to serve their original design intent, to act as a hedge against inflation. However, this is also a simultaneous silver lining for several crypto investors, as it was just macroeconomic factors that drove crypto prices downwards.

The Investor Mindset

Strong economic prosperity shows the willingness of people to undertake risky investments. High risks reward high rewards. The current trends indicate traders are opting to minimize risk in their investments and chase predictable but low returns. 

Bitcoin’s meteoric price stems from high demand, due to its volatility. Crypto’s volatility attracts investors who view it as a risky investment. This created demand, which raised prices. The worldwide recession drove down the demand, resulting in a decline in prices. In terms of Relative Strength Index(RSI), Simple Moving Average(SMA), and other trade indicators, Bitcoin still remains an attractive investment in the long term. Experts recommend a portfolio allocation within the range of 1% to 5% and investments with secure global crypto exchanges like PayBitoPro. 

Conclusion  

There is no correct answer as to when will the crypto markets recover from this bear phase. The super-low interest rates across 2021 helped cryptocurrencies record new highs, with increased investor participation and subsequent market capitalization. Worldwide inflation and 75 bps rate hike across the US forced central banks to implement a monetary tightening cycle. While things might look grim across the crypto bear phase, investors are still preferring to keep their hold on their crypto assets for the long term. Proper knowledge and research helps to prevent falling victim to high APY DeFi scams.