2022 was brutal for crypto traders. In the long run, these purges are turning out to be good for the market. cryptocoin.com We have compiled for you what to expect after cleaning.
How is bitcoin and altcoin cleanup good for the crypto market?
We’ve seen many projects go bankrupt and people lose billions of dollars. The answer to how can this be good is not good especially when people lose their life savings.
Initially, crypto, especially in the form of Bitcoin, was founded on some fundamental principles. To be honest, some in the industry either never learned this or need to be reminded of what these basic principles are. The principles are as follows:
- self-sovereignty
- Security
- Decentralization
- Separating money from the state
- censorship resistance
- Financial invitation for all
- self custody
These 7 are some of the most important elements for the entire industry. FTX is a great example of fraud here. It also looks like it was a scam from the very beginning. It came to the fore when he mixed funds with Alameda and ‘sells’ Bitcoins that he did not own to his customers.
Does FTX meet any of these core principles?
Answer is no. It would be in line with first principles if they did what ethical exchanges do, that is, use us to buy your cryptocurrency and then move it to a self-trusted wallet. But they didn’t.
It’s an advantage that scammers and those who don’t want to follow up on things that matter to us as an industry are exposed. There is still sympathy for investors who have been scammed by this, and it’s a terrible thing to happen.
market volatility
You may have noticed that volatility in Bitcoin and Ethereum has dropped very, very low lately, especially in December. Bitcoin seemed to be stuck between $16,600 and $16,800 for over a month. This range is only 1% of the Bitcoin price. This is the same asset we see moving 15-20% daily. Now it has only moved 1% for a whole month.
But then we saw a big comeback in January. Questions are raised whether the bull is back or is this a bear market rally or a bull trap. Volatility figures confirm this. Since November, volatility has plummeted after a slight dip at the end of October and recapturing the same 25%+ Volatility throughout November.
As crypto history is profitable and growing, most of us find volatility to be positive. But as we have now, there are downsides to volatility with both large downward moves and long bear markets. The peak volatility for Bitcoin in Q4 was 26.26%, and now after a long and steady decline to 9.37% in early January, it has just returned to the teens approaching normal levels.
Bitcoin has now seen a nice rise from the $16,500-17,500 range to the 22,000-24,000 range. That’s an almost 40% gain at still relatively low volatility. Seven major exchanges are seeing a surge from 48% to 10%, matching BitMex numbers. Volatility bottomed out in January and is still relatively low.
Why is low volatility good?
Low volatility is good for the current market because many speculators are out of the market. Volatility is lower because derivatives such as futures and options are traded lower. BTC and ETH futures are billions more than spot transactions on BTC and ETH.
More futures meant more volatility. There are fewer gamblers like FTX and less legal speculators on the market now. This means that built projects can be built and not worry so much about price. Projects can also focus on their communities and not have to answer questions from a 3AC about why their price doesn’t change when another project’s price is higher.
Less gambling and bullshit and trying to create independent, sovereign financial and income generating tools for more people. This latest rally doesn’t change that either. The overall sentiment is still sideways to partially negative and this is a good time to build on it.
Transaction volume
Binance increased its market share against other CEXs from 48% to 66%, while overall CEX volume fell drastically. In 2022, it fell 46% from 2021. Part of it was a bull market from 2021 to November and people were trading a lot. Also another part are people who see that all central projects have potential problems and could explode as Voyager and BlockFi did.
Another is that all FTX volume is lost. Yet another reason is that people remember that decentralization and self-guardianship are first principles. Instead they went looking for DeFi options like Uniswap and PancakeSwap. Uniswap now has higher trade volume than Kraken.
The volume has decreased a lot and this is both positive and negative. Less trading activity means fewer big moves for short-term profits. Fewer futures traders means fewer spot traders because most people trade both markets together in what is known as Carry Trade. It can also make markets less liquid. But as this rally showed us, the buyers are still here and some volume has returned.
Why is less volume good?
Less trading volume is good for crypto because many are asking questions about whether the industry will survive. The sector is too big and important to be eliminated right now, especially in emerging markets. The truth is, there is much lower trading volume.
It turned out not to be much. Everything in the market, from exchanges to swaps to DeFi to metaverse to NFTs and games, works just fine with lower trading volume. So while it’s nice to have more volume, the notion that financial speculation and short-term quick spins to make money is the reason most of us are here is actually not true. Many people who profited in this rally still hold and do not sell.
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