Panic and fear
For those who entered the crypto markets in the last 12-18 months, the period since Bitcoin began to fall in late December precipitating a wider market collapse will have been the worst market conditions experienced.
The last week in particular has been brutal, with the overall market cap dropping by around 30%. Alts have been worst hit, with several of the top 10 such as Neo, Stellar and Cardano dropping by as much as 40% following a two month stretch where prices had already fallen significantly. As such, there is barely a project around that is not 70%+ off its previous high. Projects like Tron and Verge, two projects that witnessed disproportionate pumps, are a staggering 92% off their high.
For those who remain invested, there is likely little to do except hold on at this stage an trust the market will come back. There was compelling evidence to suggest that the market was in a bubble and that a crash was coming. The large fall will likely not have come as a surprise to most, such was the irrational exuberance of the late '17 run.
Today saw projects falling another 10-20% pretty much across the board, with BTC holding up better. The overall market cap is now close to levels seen in early November, as is the price of Bitcoin. Ethereum, which lagged the wider market last year, is at the same price it was before the big jump up in early December and close to its previous June and September ATH's. It had held up reasonably well (at only 60% or so off ATH) but fell by as much as $100 today, dropping to c. $460.
The quick run up from November onwards left the markets susceptible to large falls, as investors rushed to take profits while they still could. We are now close to the bottom of those levels and sentiment is at a very low level in crypto communities. I suspect we will start to see the market bottom out shortly.
If the market is close to a recovery, it will be important to be in the projects that will rebound the quickest. I suspect these will be:
- Bitcoin: BTC generally returns quickest, it started to fall in mid December, 2-4 weeks before the wider alt market, and after BTC dominance fell from 60% to 35% in the alt run, I think we will see it return to c. 50-55% in the coming weeks
- Projects launched during the bear market: Solid projects that launched during poor conditions potentially have greater upside, with fewer investors underwater to clear and a greater ability to generate hype as the 'new' thing. These include the likes of Jibrel Network, which would likely have seen 5-10x returns had they launched just a few months earlier.
- Projects that didn't benefit from the bull market, but still got hit hard: A project such as OmiseGo is at similar prices to last August. It barely rose (by comparison to many peers) in late 2017, rising from c. $10 to $20-25, and dipped as low as $8.5 today. With a raft of good news to come, it should benefit if there is a movement towards projects about to deliver actual product, rather than the more speculative projects that ran up the most last year.
I would avoid projects that had the biggest run ups and served as the biggest examples of crypto being overvalued, particularly ones with low volume on smaller exchanges. Something like Bounty0x is a prime example of this. A small (but decent) project, BNTY raised $1.5m in its ICO on 16th December, reaching an ATH of $106m less than three weeks later. This was a ludicrous valuation and one that it will struggle to reach again any time soon. Just because a project is 90% off does not make it a good deal (and BNTY is a better run project than many others).
Days like this can be hard to stomach, and there will be many who have decided that crypto is not for them. This is fine - the swings are large and violent, and no-one can say with any certainty that the market will come back any time soon.
The best thing to do is avoid investing in projects you don't understand or that you are only investing in because they seem 'cheap'. Otherwise you end up in a situation as I did here, where I bought into something pretty much because everything was appreciating in price with no end in sight. Oops.