The cryptocurrency market is spiraling down and you can’t help but feel the anxiety of watching it all burn - hundreds and thousands of your hard-earned money. Should you just sell off and quit crypto?  Or would you like to get a proper picture of the market so you can position yourself appropriately and keep the crypto fire burning? This piece would serve as a guide.

The history of crypto prices taking a nosedive is as common as air. And this current price tank seems a lot more aggressive. As it is,

• Luna is gasping for breath at $0.2294 from $119. 

• Bitcoin and Ethereum have reached their lowest levels since July 2021.

• Bitcoin has managed to suffer a major downcut from $43k in February to a little above $28k at the time of this writing. That’s below half of $69k which it was in November 2021.

While all these might seem new, it’s not the case.

We’d analyze what’s happening in the market but before then, I should douse your anxiety by setting the stage with a little precedent using Bitcoin. It’s no news that altcoins follow the movement of Bitcoin. 

• In 2018 Bitcoin fell 65% between January 6 and February 6 and by the end of the year, it had lost 84% of its value, if calculated from December of the previous year.

• A crypto nosedive occurred in January 2022 that resulted in the loss of $205 billion in the entire crypto market valuation within 24 hours. 

• In June 2011, the value of Bitcoin fell from above $32 to 1 penny, in a single day. 

• China banned crypto in 2013 and it lost 50% of its value but before December of 2013, it had lost 83% in April of the same year.

• In August 2012, Bitcoin lost around 56% of its value.

• Bitcoin saw a massive dump that sent its price 83% down in April 2013 as its price went from $260 to $50.

These massive nosedives resulted from fundamental indicators or some other technical reasons. In December 2013 for example, Mt. Gox couldn’t handle the trading volume and it crashed, leaving exploiting opportunities for hackers who weren’t resting on their oasis. This in turn resulted in the price plummeting. 

But regardless of these occurrences, Bitcoin particularly has shown a history of resilience. And this ongoing market situation will not make an exception. This means the panic is unnecessary!

What Is Currently Happening In The Crypto Market?

We live in a world where the authenticity of things gets tested. These hard times reveal the strength of coins and as well the resolve of their holders. Apparently, we have more diamond hands than ever i.e people who hold on to their crypto no matter what. But the truth is cryptocurrency holds more speculative value to people than it does as a store of value. This leads to the first point.

Speculative Volatility

Many people might compare crypto — Bitcoin specifically⁠⁠⁠— to gold and peddle it as a worthier replacement to the gold and fiat standard. While this holds a lot of water for obvious reasons, people do not perceive crypto the same way as they do gold. And the market behavior or movement of any asset is sponsored primarily by perception. The market graph might just be a real-life image of perceptions and emotions.  

This fact is obvious because gold and Bitcoin have had opposite movements. Cryptocurrency has not always held its ground making Bitcoin fall 57% during the 2020 pandemic. While other assets tanked alongside crypto, gold spiked to an all-time high. Investors saw it as a good hedge and refuge against the sinking value of assets in the stock market. 

It’s a fact that when stock prices decrease, people transfer their assets into more stable investments and cryptocurrency has proven to be a lot volatile. 

This is caused by its excessive speculative quality rather than a long term store of value. This means it’s thoroughly driven by emotions, hence the terms “paper hands” and “diamond hands”. This often breeds instability and hopefully as its adoption increases as a legal tender this changes.

These statistics will reveal how these relate to the current market situation. Dow Jones industrial average dropped 3.1%, S&P 500 fell 3.6%, and Nasdaq, 5%. 

Crypto isn’t seen exactly differently from the larger stock market. The same emotions that rule it also apply directly to cryptocurrency even more than you might think.

A senior market analyst at Oanda, Moya says “Bitcoin is mirroring the Nasdaq. The tech-centric index is down 21% this year, while bitcoin is down 22%”. Need we say more.

UST

A good number of market sources are claiming the Luna crisis is contributing to the current crypto market price plunge. TerraUSD (UST), the coin from TerraLabs, is supposed to be an algorithmic stable coin meant to maintain the 1:1 dollar peg but it did. This caused the Luna Foundation Guard to empty its Luna treasury and  Bitcoin treasury of 42,530 Bitcoin to resuscitate UST back to $1. 

Luna has consequently lost its value against the dollar and went 97% down to $0.2294 at the time of this writing. This was from a high of $119 in April 2022. 

This current BTC dump from a big institution like TerraLabs will surely trigger a massive sell-off as we’re seeing in the market. It’s a sell-off triggering sell-offs situation currently. 

UST will have more impact on the ecosystems and you should be cautious. As the COO of Geode Finance told TechCrunch that the market cap of UST is $18billion in UST-related equity within the DeFi space, in cases where UST is used as collateral in liquidity-provider positions. And that these positions could be potentially wiped out. 

Recommendation

Do not catch a falling knife is what the old investment adage says. It’s very much relevant in this case. Wait till the market reaches its low and begins to rebound before getting into trades. Lows can be hard to determine, prices might just keep falling. Understandably, there’s the urge to buy at the very base. Remember, your assumed base could take you several decimals down again.