History rhymes as the saying goes. Today, the cryptocurrency industry gives the impression of an idea that grew big too fast; an idea that has been pushed to maturity without the necessary “grooming stage.”
The crypto bear market 2022 can be considered as the worst bear cycle in over a decade. However, the market has slowly regained stability over the past few weeks, with many traders anticipating an end to the bear cycle and a return to everyday crypto life. If what Michael Burry has said is anything to go by, then these crypto traders are in for a rude awakening.
Source – Shutterstock | Bear Market
Many of you know Michael Burry as the protagonist of the Oscar-winning movie “The Big Short,” where he predicted the 2008 economic crash, when few could. Burry saw the economic meltdown coming in 2005 after he discovered that what many believed to be a booming US housing market was one big bubble. Anticipating the collapse of this bubble, Burry entered short positions against the US housing market.
Source – Google Images | The Big Short
This time around, Burry has made some gloomy predictions about the crypto market. He recently warned that the historic collapse of the crypto market this year is just half of what’s yet to come.
Burry expects corporate earnings to capitulate, which would drag the stock market lower and, by extension, the crypto market as well. Drawing reference to previous economic crashes, the investor pointed out in a recent tweet that between 2008 and 2009, the housing bubble crashed, earnings plunged by 91%, and between 1929 and 1932, the Great Depression, earnings dropped by 73%. Currently, the S&P 500 and Nasdaq indexes are down by 26% and 35%, respectively, with Bitcoin at 65%.
In a series of tweets, the “Big Short” investor described the rally in prices of assets as the “Greatest Speculative Bubble of All Time in All Things,” warning that retail investors of crypto were facing “the mother of all crashes.”
But is Burry correct? Could it be 2008 all over? Walk with me…
Is It 2008 All Over Again?
The financial crisis of 2008, the most severe economic collapse after the 1929 Great Depression, went down as the biggest global economic crisis of the century.
Source – Google Images | Traders During the 2008 Crash
While there is a list of factors that led up to this crash, one that stands out was the reckless abandon in which the financial institutions operated. Taking an excerpt from the movie “The Big Short,” mortgage providers practically gave out homes to anybody and everybody, irrespective of credit rating, income bracket, or even a down payment.
Today, such a frenzy can be seen in certain niches of the crypto industry, especially the crypto lending sector. The emergence of altcoins ushered in an era of flashy but hollow crypto investments. Many crypto projects have turned out to be colossal failures, creating a hole in the pockets of investors and denting the image of the crypto industry.
Today, some crypto projects are no longer about utility or real-world solutions but memes and popularity contests. With overinflated future use promises, vanity-focused marketing, and meme-name cultures, many tokens have based their success on speculation and nothing more.
Whilst numerous investors have become overnight millionaires, much of the fast path to riches have come at the expense of misguided and desperate rookie investors. To what end can such a culture be sustained?
Crypto bear market 2022
The recent series of crypto company layoffs and bankruptcies, especially in the lending sector could be a warning sign of more to come. But is this the end of crypto as we know it?
Is All Hope Lost For Crypto? Learnings from the Dot-Com Bubble
The dot-com crash cleaned out $5 trillion in investment in the early 2000s. The advent of the internet spurred notable excitement in the financial space, leading to the creation of the venture-backed Silicon Valley. This sector offered novel products and services based on the new technologies.
Source – Google Images | The Dot-Com Bubble
In that similarly exciting time of change, investors became wildly speculative; putting money into any tech company with a pulse. Money poured into tech stocks regardless of whether or not it had a feasible route towards profitability. Similar to what we see now, real-world manifestation of utility was no requirement for investment; lofty promises of a bright future was enough reason to attract money flows.
Eventually, like all bubbles, these tech stocks came crashing between 2000 to 2002.
Does any of this sound familiar?
The current crypto crash may be considered a replay of the dot-com bubble. We see a similar setup with new technologies, speculative bets and opportunistic fraudsters participating in the boom. And maybe it is all about to unravel as Michael Burry expects…
Wait! There is a Silver Lining!
Fast forward a couple of decades to 2020 and we see that the internet is the foundation of virtually everything we do. The once foreign concept of the ‘interwebs’ is now considered almost a basic necessity for one to survive and function in modern cities. This highlights that the technological revolution in the late ‘90s was indeed a genuine and universally transformative one. After the hype cycles and busts took their course, in the rubble of what was left, the truly genuine pioneers such as Amazon, eBay and Google kept building and growing to become titans of technology today.
The cryptocurrency industry, the underlying blockchain and distributed ledger technologies, is probably in a similar setup; genuine, transformative technologies that are still experiencing hype and bust cycles from over-enthusiastic speculations. If there is a crash yet to come as Burry and so many experts predict, keep a close eye on the survivors in the aftermath! They’re the ones that will silently continue building Web3.0 and beyond, until the world recognizes them again for their true potential!
What are your thoughts on the crypto bear market 2022? Do let us know your thoughts in the comments section below.