It happened again. On Wednesday this week, the stock market took a hit. Covid-19 is on the rise again and the UK is on the brink of another national lockdown. The markets reflected this uncertain situation. What happened to crypto?
At the moment, most cryptocurrencies are extremely correlated to Bitcoin. Bitcoin goes up, altcoins follow. Bitcoin goes down, the same thing happens with altcoins. But Bitcoin, on the other hand, is correlated with stocks and the overall global market sentiment. We have seen this during the great Covid-19 crash this year. Bitcoin fell to slightly over $3000, after the worst stock crash since 1987.
While Decentralized Finance started to finally take off at this time, every single sign of TVL progress vanished within a few days. DeFi tokens dumped extremely hard. People panic sold. They believed we were in a year-long bear market. But after all, the opposite happened. The FED continued to print money and showed a clear determination to fight deflation.
But where do we stand now? Are we on the brink of another great crash? Is this a natural correction? Let’s find out.
This is what the Dow Jones looked like during the past five days. And this is what Bitcoin looked like.
Pretty scary hm? To be honest, it feels pretty harsh when prices dump like this. Even experienced hodlers, who have been around for many years, feel the pain. But are we really in a bear market? To answer this question we should zoom out.
This is the Bitcoin chart since it was first tracked by CoinGecko. See a pattern here? We can see a clear upwards trend over the last 10 years. This is mainly because of the 2017 bubble. Within a few months, Bitcoin rose from $3000 to almost $20.000. This set a new standard. Everybody considered Bitcoin at $3000 as very cheap.
This is how crypto markets work. We move in bubbles and 4-year cycles. While everyone is just thinking about what happens today, this week, or this month, you should zoom out and reflect where we are really heading. The long term trend is clear: It’s upwards. Even the Corona crash looks like a small correction today. People will not even remember what happened in September 5 years from now. Why? Because we are in spring. Bitcoin, Ethereum, and DeFi are just getting started.
Corrections are normal
During the previous crypto bull markets, corrections have been very common. Bitcoin made a 3x gain and corrected by 20%. This is just human psychology.
When people earn a lot of money, many of them will want to take profits. This creates a chain reaction because everyone is selling and now the market is full of fear. This leads to undervalued prices.
Speculators will notice that projects are undervalued and start buying again after some time and the next positive feedback loop starts.
As you notice, this repeats several times, even during bull markets. In crypto, we see many small hypes and bubbles inside a big one. If you understand this, you have built the mindset to be successful in crypto and DeFi. Always zoom out and understand whether we are in a long term bear or bull market.
We at DEFI WORLD believe that we are in a long term bull market. In 2016, nobody knew what was about to happen. The same thing applies today. But what should you do?
First of all, please do your own research. This is not financial advice. But we truly believe that if you zoom out and allocate your money wisely you will profit immensely in a 1 to 2 year timeframe.
It’s 2016 again.
All information presented above is for educational purposes only and should not be taken as investment advice.