Cryptocurrencies are deep in the red this year after industry market capitalization plummeted to $1.6 trillion as of Monday from $2.3 trillion at the start of 2022, a decline of about 30% in just over three weeks.
The new figures imply cryptocurrency market capitalization has roughly halved since its all-time high around $3.1 trillion in November.
“Crypto winter” flashback
It's not unusual for highly volatile cryptocurrencies to experience swift and devastating drawdowns with magnitudes exceeding 50%.
In April 2013, the price of bitcoin rallied to a high of $230 from just $13 in January. Within days, bitcoin suffered a steep drop to $68, a decline of 70%.
The last crypto bull run in 2017-2018 saw a similar pattern – a swift, parabolic price pump, then a steep drawdown within subsequent weeks.
During the 2018 sell-off, crypto market capitalization plummeted from a high of $850 billion in January to $130 billion in December, a staggering decline of 85%.
It took three years for bitcoin to return to its 2017 all-time high, marking a painful period veteran HODL-ers remember as “crypto winter.”
While the drawdowns vary in magnitude with each subsequent crypto cycle, it appears the "supercycle" hypothesis – that crypto is on the verge of mass adoption – floated by some traders last year is dead in the water.
Pockets of safety
For some traders, the emergence of major altcoins in the current cycle appears to be providing some reprieve from the sea of red.
As the cryptocurrency space matures, bitcoin and ether dominance has been on the decline, meaning altcoins are making up a larger chunk of the broader cryptocurrency market cap.
Tokens such as Fantom’s FTM (-21% year to date) and Cosmos’ ATOM (-7%) have outperformed both bitcoin (-28%) and ether (-40%).
Traders who were long FTM and ATOM and hedged positions with short selling on BTC or ETH were still able to make profits. Short selling occurs when an investor borrows a security (or in this case a cryptocurrency), sells it on the open market and expects to buy it back later for less.
Meanwhile, some of 2021’s hottest tokens such as Polygon’s MATIC (-44%), Solana’s SOL (-51%) and Avalanche’s AVAX (-48%) have notched steep losses in less than a month.
There’s one thing weary traders can look forward to now: the next cycle.
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