The past week has seen the crypto market correction continue into its fifth week, falling from the all time high of roughly $830 bn during the first week of January to a low of nearly $276 bn on Feb 6th. However, the market has somewhat recovered and seems to have found support around the $400 – 450 bn level, likely due to positive statements from US regulators and some political support.
There are a number of factors that have led to the massive correction over the past weeks, but it is virtually impossible to single out any one cause. These include FUD surrounding the supposed ban on cryptocurrencies in India – which turned out to be heavily sensationalized, the $500 m NEM hack from Japanese crypto exchange Coincheck and the $170 m Nano hack, the collapse of the Bitconnect Ponzi scheme, as well as various other theories about cyclical January dips resulting from Chinese retail investors cashing out over Chinese New Year.
There are also others that believe there has been some market manipulation from Wall Street as the first period of cash-settled futures came to a close. However, we think that it is probably due to all of these events combined with the market being overheated and overvalued. From a rough valuation of $200 bn at the beginning of November the market grew by 400% in under 2 months, with not much change in the development of the underlying assets. This kind of growth isn’t sustainable, so the correction is likely healthy for the markets in the long term.
That said, new market entrants that bought into the hype around December time will have been stung pretty hard. Our advice to new entrants at this point would be to dollar cost average your buy ins. This involves buying a set amount every week or month regardless of the price to hedge your risk against bull and bear markets.