The cryptocurrency market has started off 2022 with a whimper.
After reaching an all-time high of $2.9 trillion in early November, the entire cryptocurrency market cap has dropped just over 40%.
Bitcoin (BTC) alone has fallen around 38% since its highs. Ethereum (ETH) has fallen 42%.
No doubt, this kind of volatility is hard to stomach.
And some investors may wonder if this is a sign that amazing crypto gains are at an end.
So today, I’ll show how we should think about this pullback… and how we can position ourselves for the future.
Looking at the Past
In the cryptocurrency markets, volatile swings are fairly common… and they are temporary.
After Bitcoin broke its previous all-time high of $20,000 in late 2020, the entire cryptocurrency market cap witnessed nine pullbacks greater than 20%.
That’s a lot of peaks and valleys in a relatively short period of time.
It’s also worth noting that the cryptocurrency space is very different from the traditional stock market.
Consider this… In the traditional stock market, a bear market is commonly defined as one in which stock prices fall 20% or more.
If we apply that same logic to cryptocurrencies, that would mean we’ve entered a bear market nine separate times in just over a year.
All cryptos experience huge fluctuations in their value from day to day. And because of this, we can’t think of cryptos in the same way we would equities. We can’t apply the logic of the stock market to cryptocurrencies.
What is equally important is how fast the market rebounds even after the biggest drawdowns.
In 2021, after the entire market dropped over 50%, it eventually rebounded more than 140%.
And it only took about a month and a half after this for the cryptocurrency market to surpass its previous highs.
This kind of price action is common in crypto… And as investors, we need to deal with these daily fluctuations in value.
Keeping the Big Picture in Mind
Crypto investors’ focus shouldn’t be on the day-to-day price swings. In fact, when given an opportunity, we can use these frequent pullbacks to our advantage.
We can see the value of this strategy even in the stock market. After all, look at what are arguably the two largest technology giants of today – Apple and Amazon.
Apple is the largest company in the world in terms of market cap, which is fluctuating around $3 trillion. But before becoming the giant it is today, it experienced major volatility.
In its first five years of being a publicly traded company, it saw four drawdowns that were greater than 50%. And Apple experienced similar volatility during the dot-com bubble, as well as during the Great Financial Crisis of 2008.
Yet it’s now been over a decade since Apple experienced anything like those early periods of volatility.
Fortunately for Apple, investors who weathered the early days of volatility were rewarded as the company gradually developed into the giant it is today.
As for Amazon, we see a similar story.
From 1999 to the first half of 2001, Amazon’s prices had 10 peak-to-trough drawdowns of more than 40%.
Fast-forward to today… The last time Amazon investors witnessed a pullback like that was the 2008 Financial Crisis.
Similar to Apple investors, those who stomached the early days of volatility saw gains well over 100x.
Just like investors in Apple and Amazon, we’re bound to see volatility affect our crypto investments over time.
But if we can withstand the volatility, we’ll have the chance to reap the benefits of our investments in this space.
Crypto Is Here to Stay
It’s also important to mention that we are still early in the evolution of the cryptocurrency and blockchain industry.
And though this evolution is early, the capital flows in the industry are unlike anything I have ever seen in my over 35-year investing career.
When venture capital firms raise a large fund, they need to deploy it. They have to put that cash to work. It’s their job.
And lately, we’ve seen a whole influx of fresh capital enter the space.
In November, crypto-focused firm Paradigm raised $2.5 billion from investors. This surpassed the $2.2 billion raised by Andreessen Horowitz half a year earlier.
Later in November, Pantera Capital announced it raised $600 million for a new crypto fund.
And in December, crypto-focused private equity firm 10T Holdings announced its plan to raise $500 million for a new fund. This is in addition to the $750 million the fund has already raised since its founding in 2020.
And not to be outdone, Andreessen Horowitz came back in January with plans to raise a new $4.5 billion crypto-focused fund.
What’s more, an Andreessen partner named Katie Haun split with the firm to raise her own crypto fund. She expects to raise about $900 million.
Again, all of this capital needs to go somewhere… And it represents a fantastic setup for a unique opportunity going forward.
In fact, I’ve been working on a secret project for the past two years to take advantage of this setup.
That’s why I’m hosting a special event on March 16, at 8 p.m. ET to unveil the details.
So if you’re interested in profiting from crypto… especially making strategic trades over a shorter time horizon…
Then please attend this event. We’re calling it Jeff Brown’s Secret Project Perceptron… and I guarantee it will be a fun time.
Editor, The Bleeding Edge
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