The conflict in Ukraine, fears surrounding inflation and the Terra Luna misfortune maintained the downward spiral that affected the cryptocurrencies. While bitcoin is rocking, history shows us that crypto markets, which have gone through turbulence before, have always been particularly resilient. What if it was the right time to buy?
The crypto market had a rough month of May. In a few weeks, bitcoin, the main cryptocurrency, saw all the gains accumulated in recent months disappear. It even fell below $25,000, its lowest level since 2020. Compared to its historic peak of $69,000 reached in November 2021, bitcoin has thus lost 64% of its value.
The other cryptocurrencies followed the same downward movement. While the market was valued at 3 trillion dollars at its peak, it now weighs less than a billion dollars.
Investor concerns
With the resurgence of inflation, fueled in particular by the explosion in energy prices caused by the invasion of Ukraine, the central banks have decided to put an end to the policy of easy money. By raising its key rates (which the ECB for its part should do very soon), the Fed has pushed institutional investors, the majority on the cryptocurrency market and already scalded by the uncertainties due to the Russian-Ukrainian war, to shift to less risky assets, thus sustaining the decline in cryptos.
But the latter also suffered from the collapse of Terra Luna which, in a few days fell from 63 dollars on May 9 to 0.1 dollar on the 13th. We will not go into the details of the mechanisms that caused the decline here. of this cryptocurrency. Suffice it to say that this rapid and totally unexpected tumble helped to heighten investor mistrust, with the shock wave spreading throughout the market.
The fear index, a good market thermometer?
The Fear and Greed Index was adapted for cryptocurrencies by the company Alternative.me in 2018. It is inspired by the same index originally dedicated to the stock market. Its purpose is to measure market sentiment and thereby anticipate prices.
The index analyzes the mood of investors, their emotions when selling or buying bitcoins. It takes into account different variables such as market volatility, the volume of trade and even the number of occurrences of the subject on the internet and social networks. This last criterion marks the public’s interest in the subject and is considered “greedy market” behavior. This barometer varies from 0 to 100. The lower the level, the more one is in a situation of extreme fear. Conversely, when it approaches 100, we are in a phase of desire to buy.
Currently, the index is 08. This corresponds to “extreme fear”. It testifies, incontestably, to the nervousness of the market.
Buying Opportunities
The fact remains that you should never give in to panic and always put things into perspective. On May 17 (a few days after the Terra Luna crisis), the Fear And Greed index had already fallen to 8 (its lowest level since mid-March 2020). But on this date, the price of bitcoin was still more than 5 times higher than it was two years ago.
The history of bitcoin and cryptocurrencies has taught us one thing: the market is resilient. He is not at his first jolts and has always found the strength to straighten up and start again.
Since its launch in 2009, bitcoin has experienced periods of lows. In March 2020, it had thus lost half of its value in a few hours, falling below the threshold of 4000 dollars. But very quickly, the market recovered. The queen of cryptocurrencies had ended up starting a victorious rally that would take it around $69,000 in November 2021.
Of course, there are no guarantees, but historically periods of fear, such as the one we are experiencing today, have also presented good buying opportunities.
If you are interested in cryptocurrencies and/or want to invest, you can follow all crypto trends on the LiteBit platform, which is registered with the AMF as a service provider for digital assets. It is currently the only one to offer a fast, simple and secure service with French support for the purchase, sale and management of cryptocurrencies such as bitcoin, Ethereum and more than 80 other currencies.