The volatility behind the cryptocurrency market is second to none. Anyone with crypto-trading experience will know that a 50% flash sale is unfortunately extremely typical. So, will cryptocurrencies ever stabilize? Are they still an emerging market? This article will attempt to provide some sort of explanation to these topical questions.
Characteristics of emerging markets
As the market is still emerging, there is not the same confidence in cryptocurrencies as in developed markets like some tech stocks such as Amazon and Apple. While volatility is in no way limited to just cryptocurrencies, they offer the best example.
As the underlying confidence in cryptocurrencies and blockchain is still growing, something rather small and arbitrary can have a huge and immediate impact on the whole market. Whether that small and arbitrary event is an Elon Musk tweet or a government announcing they want to try to ban cryptocurrencies, the markets always respond in a hyperbolic fashion.
However, as many will have gathered, with great volatility comes great financial possibility. Cryptocurrencies, as do all emerging markets such as the electric vehicle market, offer life-changing returns on investments as the markets grow so parabolically.
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So will the crypto market ever stabilize?
Many like to compare the current cryptocurrency market to the emergence of internet stocks in the late 90s – otherwise known as the dot-com bubble.
The dot-com bubble emerged from a huge amount of capital investment and thus, speculation into and over the internet and tech-related companies in the late 90s. This led to a huge overvaluation for many tech stocks – including the likes of Amazon.com – and the inevitable bursting of the bubble in early 2000.
So what can be taken away from the Dot-com bubble?
Firstly, and potentially quite obviously, markets bounce back. Let us presume you invested in Amazon stock right at the top of the dot-com bubble in January 2000. You would have lost 95% of your investment.
While that sounds absolutely awful, that investment would have risen by 3000% if you sold in the middle of 2021. If you bought at the bottom of the dot-com crash you would have seen Bitcoin-esque returns on your investment.
Now, Amazon is one of the most stable stocks available to buy on the market and while that is 20 years later, it teaches us that the market always bounces back – in some instances extraordinarily quickly.
Cryptocurrency is in no different position. Take Ethereum – Maxing out at a market capitalization of $145 billion in January 2018, it lost 95% of its value. But, by the end of 2021, ETH was worth $575 billion. If Amazon stock is anything to go by then the future looks extremely promising for Ethereum.
This article is not saying that we are about to see a capitulation worthy of a dot-com comparison, but that emerging markets experience important turbulences. But as proven by Amazon and Ethereum, those markets most of the time bounce back.
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Disclosure: This is a sponsored press release. Please do your research before buying any cryptocurrency.