Volatility: The Theme for Crypto in 2021
From Bitcoin roller coaster ride to Coinbase stock plummeting on its IPO, if there is one word that could sum up the year 2021 for the crypto space, it is volatility. Although Volatility is a concept that is quite common for a maturing market, 2021 has seen its swings in making people a fortune overnight while also closing the year in a bear market. Let’s take a look at some of the key factors of 2021 that affect volatility in the space and will it continue for 2022.
Covid Pandemic and Job Losses
When discussing volatility in 2021, the pandemic might be the biggest factor as not just lockdowns being imposed everywhere throughout the first semester of 201 but also most economies were going into recession. Countries like the US and Turkey post record-high inflation numbers in 2021 and so does the global unemployment numbers that grew over 33 Million last year with countries in Northern America, Caribbean and Europe being hit the most. Although the Global GDP per capita is projected to increase by 4.3%, the continuous pressure for digitalization and the ever increasing money supply is extending the wealth inequality between the rich and poor.
More people then turn their attention to crypto as a way to fulfill their income that is lost from their job through this space with the global crypto user worldwide growing more than double of its 2018 numbers. Although this is good in creating traders, in a way it also creates a highly volatile market especially on cheaper altcoin such as Polkadot, Solana, Doge and Shiba Inu which have projected more than 1000% returns in 2021. Although the pandemic is easing towards the end in 2021 but the effect of the global economy will forever stay. Of course, one of the impacts it has on the crypto space is creating a mindset for people that they can enter the crypto space to be rich overnight and this speculation will always lead to volatility and a bubble in the market.
Elon Musk and Celebrities Influence
When talking about speculation and volatility in the market, those things are actually the effect that is caused by a hype drive into the market and as what we already know, the crypto space is highly responsive to hype. Elon Musk not only became the richest man in the world in 2021 but he also affected some of the high’s and low’s in the crypto market last year. His series of tweets and endorsements were sufficient to send a crypto to the moon as Bitcoin reached its all time high of $51,000 in February 2021.
This was enough to rally traders and profit takers to push the price to another all time high of $61,000 by May and unfortunately volatility bit back when Musk raised the environmental concerns of Bitcoin mining. This not only wiped all the gains made by Bitcoin throughout this year but also sent its price tumbling down to $32,000 below the opening price of 2021. Although Bitcoin was not only the coin he tampered with in 2021, memecoins like Doge and Shiba Inu also lost steam in their growth when his backing stopped. Obviously Elon Musk is not the only celebrity leveraging their exposure to influence the crypto space. Elon was the prominent figure in much of the market volatility especially in the first semester of 2021 and his backing of memecoins like Doge gave a rise in these worthless coins flooding the market.
Memecoins and NFTs the new Gamestop
Unfortunately speculations and volatility or as what we called “Pump and Dump” scheme does not only originate from High Profile Celebrities but even from the community within the space. Communities exist in all types of crypto assets but it plays a larger role on smaller capped altcoins especially memecoins and the NFTs. These communities will then try to take advantage of FOMO in the space and will convince you it is the next big thing when it clearly sometimes has no value at all. This is obviously heavily inspired by the Gamestop strategy where a group of people in the wallstreetbets community use their collective power to take on the Hedge Funds.
The main difference is that they have a reason to buy the stock because the Hedge Funds are shorting their positions but in the case of memecoins and NFTs, there is no specific reason at all. The demand is purely based on FOMO and speculation and the supply itself may have no value at all in the future. This is why the volatility in the Memecoin or NFTs is because they don’t have a baseline value to fall back on and when the demand stops, the price could literally freefall to zero. One of the examples of this is the Squid Game Token which literally went from $2861 to $0.003467 in a matter of hours.
Will this continue to affect in 2022?
As the market matures and the Pandemic is expected to stretch through 2022, these factors will continue to affect the stability of the market. The scary part of the crypto market is that most of the cryptocurrencies and NFTs out there do not have any intrinsic value to begin with so they will always have to depend on external influence or market manipulations to continue and push their value.
There should be better frameworks and regulations in place to let the breakthrough technology of each cryptocurrency do the talking in its market value instead of self proclaimed crypto experts who inflate or deflate any coin whenever they want to increase their profits. People should also be more informed in choosing a crypto-asset and NFTs based only on their perceptions and views.
While these are not properly in place and crypto space still being a place filled with speculation and volatility, these influences will still reign supreme in the market so hang on to your seat fellas because it’s going to be a bumpy ride ahead.
“High-profile celebrities and Twitter accounts showing FOMO (fear of missing out) are likely here to stay. The power of social media in the crypto market is testament to the general lack of regulation and maturity, and the inherent liquidity of 24/7, permissionless assets.” Said Edward Oosterbaan from Coindesk
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