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Will there be a bear market in 2022?

Will there be a bear market in 2022?
Written by publishing team

When 2021 comes to a close, it will be remembered as a strong year for stocks that were more of a bull than a bear market.

The benchmark S&P 500 more than doubled (+24%) its 40-year average annual total return of 11%.

But for cryptocurrencies, things were more than solid – it was exceptional.

Since the beginning of the year, the total value of digital currencies has increased by 176% to $2.14 trillion.

New possibilities related to decentralized finance (DeFi), non-fungible tokens (NFTs), and the massive potential of blockchain-based gaming in the metaverse have boosted investor confidence, but have also sent cryptocurrencies to unexpected heights (just look at the rise of the meme-coin). Shiba Inu is over 45.000.000% from year to year).

However, there are certain concerns that the coming year may not treat cryptocurrencies as kind.

There are several reasons that could lead to a bear market for cryptocurrencies in 2022.

Fed policy

The Fed finally acknowledged that inflation was not “temporary” and indirectly announced the possibility of multiple interest rate hikes next year.

Mario Gatara, an analyst with market intelligence firm Analogica, told Coin Rivet: “Now that the Fed has finally past the ‘temporary’ label for inflation, accelerating the tapering of quantitative easing, it’s clear that multiple rate hikes will be on the table for next year. .

There are no surprises there, which explains the recent bout of optimism on Wall Street.

However, with Jerome Powell describing central bank monetary policy as data-driven, the guessing game continues – monetary policy should remain the dominant issue over stock market performance, while keeping stocks at the Fed’s mercy.

“Needless to say, things can get ugly if inflation continues to rise for an extended period.”

He further explained that the crypto world appears to be a clear beneficiary, but that despite historically low correlation with the stock market, over the past few months Bitcoin has exhibited very different behavior – which could lead to a bear market.

Famous for its volatility, the cryptocurrency pioneer has led the rest of the coins to a risk/risk mode, along with stocks, suffered a sharp selloff, and languishes far from all-time highs, along with a handful of meme stocks (which have been very popular lately). )”.

“This could be a sign of lower risk appetite on the part of retail investors, while an extended slump could dampen new demand and increase much-needed momentum to maintain the attractiveness of crypto assets to new entrants.”

However, Jatara concluded that if inflation continues to rise for a prolonged period – “things could get very difficult”.

Cryptocurrency market history

History may indicate that the cryptocurrency market could reverse a bear market and that reversals coming after a recovery are not new.

Since the March 2020 low, the total value of all digital currencies has jumped more than 14-fold to $2.14 trillion.

This is somewhat similar to the 35-fold increase in total market capitalization over the roughly 10 months between March 2017 and January 2018.

However, after the sudden rise in January 2018, the total value of all cryptocurrencies would continue to decline by only 90% over the subsequent 11 months.

Distrust of Blockchain – Catch 22

While the blockchain is exciting, it is still new and has not yet been widely adopted.

Companies are still reluctant to jump at the opportunity to support large-scale projects until there is practical evidence of their effectiveness.

However, not everything can be proven until companies welcome blockchain technology with open arms.

It’s the puzzle/Catch-22 that could delay the rally and cause bear market rules for some time.

margin debt

Margin describes the amount of money that investors borrow with interest to buy or sell short securities.

In some cases, investors who use margins to leverage their trades can increase their returns.

But if securities bought on margin don’t move the way they expected in the short term, brokerages want investors to put more money in as collateral or they may even be forced to sell assets – also known as a margin call.

FOMO

Some argue that ‘Fear Of Missing’ (FOMO) may suck the life out of the cryptocurrency market in 2022.

All of the most popular meme coins share one main feature – the lack of anything resembling a competitive advantage.

For example, Shiba Inu may be one of the most searched cryptocurrencies this year, but social media hysteria doesn’t necessarily mean it will have long-term potential.

In short, nothing about Shiba Inu (or Dogecoin and Floki Inu) guarantees that it will be the payment currency of choice for companies in the ever-growing sector of blockchain projects.

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