Does looking back on past crypto market crashes make sense?

Original author: Ana Grabundzija

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With the price of Bitcoin sliding down 50% since the November peak, investor sentiment became increasingly negative, and the focus from making ATH predictions shifted to debates about its rebound potential.

The current crypto downturn shares the same broader context with the equity market slump, as tech stocks recently dropped to new 14-week lows.

But, while most agree that investor uncertainty was fuelled by the prospect of higher interest rates and political tension, with the Ukraine-Russia crisis heating up, can looking at the macros justify the fear of the 2018 bear market repeating itself?

How bad is it?

The fear of 2018 repeating itself crawled back into the bull-bear market debate. 

“Macro-induced downturns have more structural similarities to March 2020 than 2018 (which was a crypto downturn during a very risk-on environment),” co-founder of the crypto hedge fund Three Arrows Capital (3AC), Zhu Su, commented on Twitter.

Reminder that macro-induced downturns have more structural similarities to march2020 than 2018 (which was a crypto downturn during a very risk-on environment)

— Zhu Su (@zhusu) January 23, 2022

To support his argument, Su “reminded” about three rate hikes in 2017–a year remembered for the biggest crypto rally ever. 

2018 is remembered with great dread, as the price of Bitcoin fell roughly 65% during the month from 6 January to 6 February.

By September that year, the MVIS CryptoCompare Digital Assets 10 Index had lost 80 percent of its value, making the crash of the cryptocurrency market, in terms of percentage, worse than the bursting of the Dot-com bubble with its 78% collapse in 2002.

What happens next 

Following the 2018 crash, it took almost three years for the price of Bitcoin to climb back up to the ATH it reached in late 2017.

However, since then, the crypto market developed into a completely new beast–in size as well as complexity. 

Just looking at sectors like DeFi and NFTs suggests how the current market is unrelatable to 2018 conditions.  

Jim Cramer who runs the CNBC Investing Club said he expects “a wave of money coming from crypto into stocks,” as he pointed to his list of recommendations–just to be reminded by Su that retail investors are already given a better incentive.

At most I could see this going into growth tech stocks and faang

Highly doubt anyone is gonna buy value stocks or utilities when stables already yield much higher in DeFi

Zero chance millenials buy Brazilian commodity extractors, Russian banks, or Chinese life insurance cos https://t.co/b8p5CHVula

— Zhu Su (@zhusu) January 23, 2022

“Zero chance Millenials buy Brazilian commodity extractors, Russian banks, or Chinese life insurance cos,” argued Su, who doubting “anyone is gonna buy value stocks or utilities when stables already yield much higher in DeFi.”

Meanwhile, the myriad of institutions that entered the space during the past years will also play their role in the market response.

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