Why Is Crypto Market On A Downward Trend In 2022? Here's What Investors Should Keep In Mind

Bear markets are a regular part of any investment cycle. So, they shouldn’t be feared, rather we should learn to manage them.

All financial markets experience spells of rise and fall, and so does the crypto market. We all saw Bitcoin rise to its all-time high at $68,000 post-quantitative easing by the US Federal Reserve back in November 2021. However, this rally was replaced by consolidation this year due to several macroeconomic factors. Here are some prominent ones which led to the downward trend of the overall crypto market in 2022: 

Uncertainty around COVID-19

It all started with increasing uncertainty around the new COVID-19 variant in January. The fear among the market participants began holding them back from investing in riskier assets due to the possible fear of lockdowns. 

Russia-Ukraine war

In February, Russia announced a war against Ukraine. All stocks and equities markets, along with crypto have crashed, with massive sell-offs being initiated. It has hampered the crypto market's rally record over the past year. 

Terra crash

Even though the market seemed to be consolidating in April, it only started to fall in mid-May. The collapse of the stablecoin Terra has wiped out nearly $50 billion from the market. Bitcoin hit its all-time high after the US inflation reached a 40-year high. Although this seems massive, it was soon followed by the liquidation of the hedge fund, Three Arrows Capital (3AC), and the troubles associated with Celsius and Vauld. 

Additionally, rising interest rates, increasing inflation, and unfriendly regulations worldwide have created panic about recession among investors and traders. These series of events not only led to the crypto market's downfall but also impacted the equities and stocks. This dip has created a negative sentiment across all markets. 

Will the market recover? 

This is not the first time the crypto market has experienced a downward trend. We all have seen it rise and fall since its inception. But the crypto market has been recovering and bouncing stronger every time. So, it would be early to anticipate a bullish trend considering macroeconomic events. Hence, we must wait and watch as the market corrects itself and regains momentum.  

Tips for investors to survive during a crypto bear market 

Avoid panic selling: Most investors are likely to sell their holdings on the first sign of a market drop. But it can lead to costly mistakes. So, in such a case, it is best to shut off a bit from the market news for some time. If the investments you made were carefully evaluated, there is no need for you to panic sell.

Maintain consistency: Investing a fixed amount at regular intervals, irrespective of the market movements, is a wise decision.

Focus on rebalancing: Some cryptos might appreciate or depreciate after a certain period. So, considering the rebalancing of the portfolio is a good idea.   
 
Have a perspective: No matter how long the downturn ends up being, remember that the past markets have bounced back. Investors who remain calm and composed even in an adverse market will likely avoid pitfalls and enjoy better returns. 

Evaluate goals and risk tolerance: It can be easy to forget long-term goals when times are good. At times of bear market, it is an excellent opportunity to jolt down and evaluate goals and risk tolerance levels. 

Bear markets are a regular part of any investment cycle. So, they shouldn’t be feared, rather we should learn to manage them. With increasing crypto adoption day by day, more individuals and institutions will come forward to buy the market dips. So, growth is definitely around the corner. Also, with greater adoption, the market volatility is likely to decrease in the near future. 

(The author is the CEO and co-founder of Mudrex, a global crypto investing company.)

Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal. Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Cryptocurrency is not a legal tender and is subject to market risks. Readers are advised to seek expert advice and read offer document(s) along with related important literature on the subject carefully before making any kind of investment whatsoever. Cryptocurrency market predictions are speculative and any investment made shall be at the sole cost and risk of the readers.