Cryptocurrencies, much like any other asset, move in market cycles that can be both bearish, meaning the values of these assets are dropping, or bullish, meaning the value of these assets is going up. Bullish and bearish movements are defined after moves above 20% from the top or bottom.
Currently, the cryptocurrency space is a bearish market – often called Crypto Winter – after the prices of most crypto assets dropped well over 50%. It’s not its first Crypto Winter, however, and history has taught us a few things about these events.
Often, during these periods long-term crypto holders start accumulating at a more aggressive rate. While the accumulation is ongoing, crypto prices often move sideways in what’s known as a crab market.
This type of accumulation is often tracked by the number of active addresses on the network and the supply being held on cryptocurrency exchanges. As cryptoassets move away from exchanges and more addresses become inactive, the possibility of a price shock increases if demand for these assets grows.
Bitcoin experienced a supply shock numerous times in its history after continued downturns as buyers suddenly moved in and there weren’t enough coins on exchanges to meet demand. The result were surging prices.
These shocks occur over an extended period of time and aren’t immediate, as extremely large buyers no longer need to buy on the spot market and instead use over-the-counter exchanges to get their coins without affecting market prices.
Rock bottom prices?
Any currency can hit extreme lows or even become worthless. At the end of the day, cryptocurrencies are like fiat currencies but aren’t backed by central banks, nor is demand for them pushed through taxation or other state-sponsored means.
Before embarking on any type of trading or investing journey, users must ensure they have a strong understanding of economics, market cycles, and factors influencing them to ensure they know what’s going on.