Written by 11:25 pm Cryptocurrency

Has the crypto blow-up paved the way for a stronger, more widely adopted and better regulated market?

Bitcoin’s price tumbled from a record high of more than $80,000 in November, 2021, to less than $25,000 this week, and dragged the rest of the cryptocurrency market down with it.DADO RUVIC/Reuters

Bitcoin’s price has tumbled from a record high of more than $80,000 in November, 2021, to less than $25,000 this week, and dragged the rest of the cryptocurrency market down with it. The drop was severe enough to bankrupt big and small cryptocurrency exchanges and companies across the world, most notably FTX, BlockFI and Celsius.

But is this the end of crypto?

I’ve watched the cryptocurrency bubble burst a few times over the past decade, and every time it has, it’s felt like the end. But cryptocurrency has yet to disappear. Even now, with bitcoin down about 75 per cent from its record high, there is still interest in it. In fact, this collapse is perfectly in sync with bitcoin’s existing market cycle.

No one can say for sure if bitcoin will bounce back from this latest fall, but I can tell you that having watched it rise and crash a few times, I’ve never regretted holding on. If this is the end of crypto, then it’s been great ride, but I think there’s more upside ahead.

A classic bitcoin supercycle

Bitcoin, and by association the cryptocurrency market, tends to move in a four-year cycle with four distinct phases. These phases centre around bitcoin “halving” events: when a bitcoin miner receives half the reward for mining a bitcoin block.

The four phases of the bitcoin supercycle are: the accumulation phase, the continuation phase, the parabolic phase and the correction phase. This year we entered the last phase, which is typically marked by the price of bitcoin falling 80 per cent off its previous high.

We are now in what is called a “crypto winter,” a period marked by low prices and poor investor sentiment in cryptocurrency. This will probably last until the next bitcoin halving cycle in 2024. At that point, we will likely see a renewed interest, which should lead to price recovery, and ultimately new heights – if the cycle performs as it has in the past.

Of course, this optimism is speculative. Bitcoin and cryptocurrencies as a whole remain highly volatile assets that face major barriers to widespread adoption. And even though patterns are visible in bitcoin’s price history, this history is relatively short and therefore of limited use when it comes to making projections. Nevertheless, I wouldn’t say the end of cryptocurrency has arrived, or is even near.

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It’s not over until it’s over

In fact, this most recent market blow-up might actually lay the foundation for a stronger, more widely adopted and better-regulated crypto market.

In the most recent bull run, cryptocurrency and Web 3.0 technology received more institutional buy-in than ever. The introduction of cryptocurrency ETFs to the Toronto Stock Exchange, the debut of Canadian-based crypto exchanges such as Newton and Shakepay, plus the emergence of a number of new blockchain-based startups made investing in cryptocurrency and blockchain technology easier than ever.

Even as cryptocurrency’s price has tumbled, these businesses haven’t disappeared.

Furthermore, there are signs that there is still major financial interest in cryptocurrencies from banks and governments. U.S. financial behemoth JP Morgan registered a trademark for a digital wallet. The Bank of Canada is still looking at the future of a central bank digital currency. In other words, there is still considerable interest in cryptocurrency, even if the retail investor’s outlook on bitcoin has soured.

The problem is that as crypto blow-ups get larger and burn more investors, the damage done to the industry is more reputational, than financial. One of the largest barriers to adoption now is not the functional utility or implementation of cryptocurrency, but consumer wariness and fear. People who have sustained significant losses that compromised their long-term financial security and personal relationships are unlikely to enthusiastically jump back in, even if the market has improved.

We are in a market environment where everything is down: real estate, the stock market and cryptocurrency. We can’t say crypto is dead unless it fails to come back when everything else recovers.

It’s easy to say “this is the end” when everything is down, but markets move in cycles. For the past 13 years, cryptocurrency has come back from its lows and gone on to reach all new heights every time. This could be the time that bitcoin really doesn’t recover, but as of right now, it’s too early to call.

In the meantime, I’m still hanging on, as I always have.

Bridget Casey, MBA (Finance) is founder of Money After Graduation, a financial e-learning company. You can follow her on Instagram at @bridgiecasey and Twitter at @BridgieCasey.

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