3 reasons why the cryptocurrency market collapsed and why the crypto spring is inevitable

As recently as November 2021, the cryptocurrency market had a market capitalization of over $3 trillion. Today it is $850 billion, a 70% drop. Many investors fear that a crypto winter is coming, but there is still reason for hope.

Why the cryptocurrency market collapsed

First, let's see what went wrong.

The pandemic period was unprecedented

When lockdowns began in March 2020, economies ground to a halt. People were stuck at home and couldn't spend money on restaurants, travel or live events. This gave people with means the opportunity to put more of their money into investments.

The economic recovery was swift and emphatic. Many people have begun to resume normal activities. This means that the time, money and energy they invested in interesting opportunities like cryptocurrencies are now being used differently. Part of the market crash is the loss of the safety net that the global pandemic provided.

Correlation with the stock market

The most ardent supporters of cryptocurrencies have promoted them as an interesting diversification that does not behave like other asset classes. However, as 2022 progresses, the correlation between cryptocurrencies and the broader stock market becomes increasingly apparent.

Geopolitical earthquakes

The war in Ukraine shook the global economy. Supply chains have been crippled for months. Growing far-right extremism has become a global phenomenon. The effects of climate change are beginning to be felt throughout world.

In times of great uncertainty, investors tend to avoid riskier assets. Conventional proven asset classes perform better when the future looks bleak and uncertain. Cryptocurrencies are inherently risky. This risk is also part of their appeal, as their potential for long-term growth is unmatched, but to thrive, investors must feel comfortable enough to get involved. Given the current state of the world, it is easy to see why this is not the case.

Signs of crypto spring

There is one main reason why the crypto spring is inevitable. We've seen this scenario before.

These kinds of bear markets are nothing new to the cryptocurrency market. In June 2011, Bitcoin 99 % lost its values after the crash of Mt. Gox. In August 2012, there was a 56% crash. 2018 saw an 84% drop as many countries considered banning Bitcoin.

All these stories ended the same way – the bear market has provided fertile ground for technology to build, leading to breakthroughs and innovations that in turn bring investors back. Market cap losses look pitiful, but the reality is that the crypto ecosystem is as strong as it has ever been. New projects and technological advances are being worked on and institutional investors have maintained their interest despite all the difficulties.

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All content in this article is for informational purposes only and does not in any way serve as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.