Negativity is one of those emotions that gets clicks and “hooks” in our brains better, so it is only natural that people would be dwelling on the worst parts of this bear market. However, there are several different reframes that can be made which put the whole thing into a way better light.
With an 85% drop from the peak at approximately $20k in 2018, we have been hovering around $4k Bitcoin for a while. But there is something distinct about this bear market: nobody is worrying about Bitcoin coming back. In previous bear markets, investors would wonder about whether Bitcoin would exist in the future, but this time around, people are much more assured that it will come back.
What Really Matters: Innovation
Not only has Bitcoin become a household term most, if not everyone, recognizes, but blockchain technology is still being developed at a staggering rate. The developers never stopped working, even if the traders did. This means that the technology has continued to improve.
Additionally, you have approximately $6 billion of cash waiting to go into Bitcoin, and institutional investors beginning to make small moves towards investing in cryptocurrency. The fact is, this is not even close to the worst “crypto winter” ever. Development has continued and institutions are readying for the shift into this new space, even as they say that “crypto is gone” or is a scam. That is basically just their way of suppressing the prices while they accumulate cryptocurrency and position themselves better for the next bull market.
In previous downturns, there was much more of an attitude like the industry was going to be wiped off the face of the Earth. Now it seems like the industry has hit a critical mass where it is going through a market cycle rather than being threatened existentially.
And as Spencer Bogart of Blockchain Capital said:
“This industry hasn’t slumped at all really… We operate a fund that invests in both digital assets and companies themselves, and we see more higher-quality companies come into [our offices] everyday. Behind the scenes when you think of the macro environment, with rising debt levels, money printing, the tension between nationalism and globalism, and jurisdictional competition, there’s a strong case to be made that Bitcoin is the most compelling asset in the world right now.”
Price Is a Distraction
Maybe the biggest lesson amid a flurry of bullish Bitcoin price predictions is that the price doesn’t matter in the short-term. In recent weeks, we’ve seen big players like Tom Lee predict a Bitcoin run back to $25k, but the more important aspect is whether there is talent, capital, and innovation in the space. The more of those 3 inputs there are, the higher the eventual price of cryptocurrencies.
We get too caught up in the price of Bitcoin sometimes, and forget a few realities of the situation. First, price is a lagging indicator of what the digital currency is likely to become. That means it is a reaction rather than cause of how well it fulfills its function (although there is some interplay). Second, although the price of Bitcoin is highly correlated with most altcoins, the amount of development happening within each protocol is not correlated. Therefore, there is room for investors to make bets on other cryptocurrencies based on how much innovation is occurring, and when the BTC correlation does break, they will have a chance to earn some alpha.