From its inception, Bitcoin has seen extreme volatility relative to more established asset classes because of its status as a decentralized digital asset or cryptocurrency.
Due to its erratic behavior, many have predicted its demise. In today’s article, we take a look at the crypto market’s cyclical nature and the reasons why Bitcoin has established its longevity.
Bitcoin’s Notorious Volatility is where many have gained and lost Fortunes
The value of one Bitcoin has fluctuated wildly since the Genesis Block was mined in January 2009. Since it was a brand-new, low-liquidity, fledgling market based on experimental technology with very limited market depth and minimal adoption, its early stages were marked by severe volatility. Recent fluctuations can be attributed to the excitement and anticipation of Bitcoin halving every four years.
A halving occurs when Bitcoin’s algorithm cuts in half the number of freshly created Bitcoins produced by Proof of Work (PoW) miners. Every 210,000 blocks, or around once every four years, the number of blocks on the blockchain is halved.
Many of the largest cryptocurrency exchanges, stablecoin projects, and loan marketplaces have failed spectacularly in the past year. In light of these setbacks, many crypto newbies have said that the industry is finished and they should withdraw their resources. To be fair, many users and investors haven’t been around for prior crypto bear markets, thus for them, this bear market has been extremely harsh.
There was a time when the cryptocurrency market was a small, unregulated underground. Bitcoin and other cryptocurrencies were stigmatized, so traditional financial institutions and investors shied away from them. In the beginning, there were many traps and hazards for investors.
Before then, crypto markets were unusual, decentralized, and a whole different animal than regular markets. The general public gradually began to accept the idea that crypto may be more than a passing trend, that this unique technology could have lasting value, and that it could be around for the foreseeable future.
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The Effect of the Bitcoin Halving on the Value of Other Cryptocurrencies
As the first cryptocurrency ever created, Bitcoin currently commands a significant market share. It has the highest market capitalization, the highest adoption rate, and the highest liquidity, and is the principal quote currency in crypto trading pairings on the majority of the largest cryptocurrency exchanges.
What this means is that the rest of the 22,357 altcoins tend to follow Bitcoin’s price behavior. While there are exceptions that act as a countertrend to Bitcoin’s market momentum, the majority of coins follow Bitcoin’s lead and are influenced by its price.
All of Bitcoin’s price movement over the past 14 years since its inception can be traced back to the halving cycle. Bitcoin’s price tends to skyrocket just before and immediately after a halving, attracting a swarm of new investors.
This process keeps going until the price action becomes an illogical bubble that can’t be sustained. As the market’s savvy money cashes out, the Bitcoin price typically plummets, leaving behind naive early adopters and late-comers who bought at the peak.
Several altcoins, exchanges, and crypto companies have been washed out and collapsed as a result of this market cycle, which occurs after every halving because their business models did not account for this volatility. Bitcoin’s value has fallen repeatedly since 2009, sometimes by as much as 90%.
Individuals who buy at the peak and are able to hold on to their coins until the next halving are often heralded as having “diamond hands” that have been refined by the Bitcoin community’s fiery tests of patience. It’s not as easy as it seems at first. Just inquire about their Bitcoin holding experiences with any long-time Bitcoin user.
In the aftermath of the historic Mt. Gox hack in 2011, Bitcoin saw its first bear market, with a price surge to $32 per BTC before plunging below $0.01. It was because of this that the first public announcement that Bitcoin had died was made. Bitcoin’s supposed demise during the bear market phase of the cryptocurrency industry’s 4-year halving cycle has become somewhat of a running joke in the industry.
Tragedies such as Defunct Coins, Failing Exchanges and Unsuccessful Startups
The collapse of 2022 Terra, the bankruptcies of Three Arrows Capital, Voyager, Celsius, and FTX, plus the latest controversies surrounding Digital Currency Group (DCG) and Genesis/Gemini may appear like a series of catastrophic events for the cryptocurrency market. Yet if we look back far enough in time, we’ll realize that this sort of event has happened before.
Current investors in the cryptocurrency markets may find the ranks of cryptocurrencies unfamiliar if they consult Coinmarketcap’s previous snapshots. A variety of coins, some of which may be foreign to outsiders, are on display. Curious-sounding names like Mincoin, Novacoin, Freicoin, and Peercoin all belong to different projects. These initiatives represented the earliest alternatives to Bitcoin, or forks of the original blockchain.
Several of these efforts have been forgotten, and their coins are now considered “dead coins” because they no longer function. There are also fraud coins, failed initial coin offerings (ICOs), and failed meme or joke currencies, all of which exist alongside abandoned coins. The most popular lists of defunct cryptocurrency assets include nearly 2,000 items. There are currently over 20,000 alternative cryptocurrencies, and many of them could go the way of the dinosaurs in the next market cycle.
Successfully operating a cryptocurrency exchange has a long history of being difficult. We have witnessed such failed trades throughout the years. Funding mismanagement, regulatory issues, exchange hacking, scams, and an inability to operate effectively in a highly competitive market are major causes of failure. If you want the whole rundown, the website Cryptowisser.com has a wonderful page documenting exchange failures.
A purported 42% of all transactions end in failure. The number of failed exchanges surged by 252 per cent in 2019 and is projected to rise by another 17 percent in 2020. The string of failed ventures, loan platforms, and exchanges that ushered in the current crypto winter began in November 2021 and has only recently begun to be felt. Markets have shown signs of improvement over the past few weeks, but we may not be out of the woods just yet.
Dead currencies and defunct exchanges aren’t the only things we’ve seen during previous crypto market cycles; other crypto firms have also collapsed. Bitcoinist, a news outlet, estimated that as many as 92% of cryptocurrency firms fail and that the average lifespan of defunct blockchain startups was just 1.22 years.
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The News of Bitcoin Dead has been greatly Exaggerated
Despite the fact that there is a shockingly high rate of failure in the crypto markets (as evidenced by a long list of dead coins, failed projects, and formerly billion-dollar startups going bankrupt), it is clear to anyone who has been paying attention that the crypto asset industry as a whole is here to stay.
For the first time in human history, we are on the cusp of seeing the tumultuous birth of a new asset class and a whole new digital form of programmable money. Like with previous Rapid adoption curves for new technology, the road ahead is likely to be rocky.
— Lightning Ventures (@ltngventures) March 1, 2023
Despite the current bear market cycle’s negative sentiment, the cryptocurrency market has proven to be robust and has always rebounded with even more strength and vigor throughout its brief but eventful 14-year history.
We have seen many enterprises, businesses, lenders, and exchanges fail before, and we will watch them fail again. The crypto sector is no different from the regular one in that large players both make fatal blunders and ultimately fail. We merely perceive it as exaggerated, given its recent volatility and market momentum, which has led to frequent and spectacular accusations that it is dead, once again.
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