Crypto markets have been crashing after FTX episode. One of the previously top 5 crypto exchanges, FTX capitulated after it failed to receive a bailout from Binance. The fall of such a giant sent shockwaves across the industry. It also locked millions of dollars of crypto away from users, who are now unable to withdraw. Therefore, popular Bitcoin and Crypto maximalists like Michael Saylor(MicroStrategy) and Changpeng Zhao(CEO, Binance) are strongly advising self-custody of cryptocurrencies.
The major cryptocurrencies which crashed in the past 7 days are FTX, Solana(54%), Cronos, Algorand and Bitcoin.
We shall also explore what could be the best course of action in such a scenario. Whether you should buy more, sell or or hold your investments?
The Market Crash
Market Crash
A little more than a year ago, Bitcoin touched an all time high price of $69 Thousand. After that the markets cooled off and it appeared like profit booking. However, the markets began crashing soon. A brief relief rally occurred in March 2022 which took Bitcoin prices to a local high of $47 Thousand before it came down crashing, again.
Over the months of April, May and June there were several incidents which led to further crashes like Terra LUNA in early May, Crypto Hedge Fund Three Arrows Capital in mid-June and Voyager Capital in July.
Another major reason for the crypto bear markets is the raising of interest rates(to curb inflation) by global central banks. During the pandemic, global central banks printed excess cash to combat the lockdowns, recessions and shortage of money. The US Federal Reserve printed upwards of $4 Trillion with $3 Trillion in first 6 months of the pandemic. Similarly, the European Central Bank printed money worth $2 Trillion during and after the pandemic. This led to serious inflation and central banks began aggressively cutting interest rates. Cryptocurrencies which thrived on stimulus packages given by governments began crashing down.
Will the markets recover after a 76% crash?
Bitcoin dominates about 40% of the crypto markets. For the recovery of crypto markets, Bitcoinâs recovery is significant. Currently, Bitcoin has breached its 52-week low. Further the investor confidence on markets is extremely low. The current crash from all time high of $69,000 is 76%.
However, we have seen past drawdowns in which Bitcoin crashed up to 99% and yet recovered. Here is a look at Bitcoinâs past crashes.
June, 2011. Bitcoin rose from $2 to $32 and crashed back to $0.01. A crash of over 99%.
August 2012. A Ponzi scheme operator who stole more than 0.7 Million Bitcoin paved the way for another collapse. This time the price crashed by 56%.
April, 2013. Bitcoin crashed following an attack on Mt Gox exchange which crashed the prices from $260 to $50. A crash of over 83%.
December, 2013. Chinaâs ban on Bitcoin led to a 50% market crash from $200 to near $100.
December, 2017 â December, 2018. Bitcoin peaked in 2017 at $20,000. The markets then started selling off in response to the hacks from Japan and South Korea. Bitcoin crashed from $20,000 to near $3000. This was a 85% crash and the largest amongst significant crashes.
March, 2020. The pandemic led to a Bitcoin selloff as people started to conserve cash for survival efforts during the time. Bitcoin crashed by 60% to reach below $4000 from about $1000 in two months(Feb-March).
May, 2021. In April 2021, Bitcoin reached $64,000 and then the market crashed as China began a crypto-crackdown and Elon Musk went back on a promise which would allow people pay in Bitcoin for their Tesla.
What should I do now?
1. Secure Your Funds
Currently the largest risk in the world of cryptocurrencies is the capitulation of exchanges. FTX Collapsed without any prior hints. Though there is a demand for Proof-of-Reserves, it would still take some time to implement. Further, in case of a insolvency, your Bitcoins can be sold off by exchanges to payoff their obligations.
Therefore, it is advised that you take your crypto off the exchanges. You can choose the following ways depending upon your knowledge and experience.
If you are a beginner, you can use wallets like Trust Wallet or Math Wallet. They are easy to use and are available for free.
Users with moderate experience can use MetaMask wallet. However, Metamask only supports ERC-20 tokens. You can store other tokens like Solana after wrapping it as an ERC-20 token. You can add supported coin via RPC Mode. Here is a guide on adding Polygon to Metamask through RPC.
You can also choose hardware wallets(cold wallets). Have a look at our updated guide on cold wallets. We have also listed top 5 cold wallets.
2. Buy little. Save Cash. Sell, if necessary.
Holding cash is very vital during these market crashes. You can hold it in the form of stablecoins or as cash in your bank. It is due to two essential reasons:
Cash helps you save from volatility of the cryptocurrency. A new trader can lose money very rapidly in crypto.
Another benefit of holding cash is that it gives you opportunity to buy cryptocurrencies when their prices are at the right point.
But how will you know when to buy?Â
The answer is simple, keep visiting The Layer. We post articles around Technical Analysis, On-Chain Analysis, Critical News and much more.
Conclusion
Markets have gone through far worse market cycles and have recovered spectacularly. However, not all players survive the market crash. This is true both for companies, exchanges and common people like you and me. Bitcoin and other cryptocurrencies will surely recover once situations become favorable. Till then conserve cash and keep visiting The Layer.
