cryptocurrency

Crypto VC Thoughts: Crypto Business Cycle

Bull ? and bear ? markets are people usually referring to a business cycle. However, it is a more self-fulfilling prophecy ? than it is. 

Image credit: https://www.linkedin.com/posts/edward-yardeni_stockmarket-sentiment-economy-activity-6932771349136363520-P_F0

The bull market indeed leads by creating credits a.k.a new money, to boost business activities. On the other hand, the bear market diminishes credits to request debts to pay off faster due to a shortage of money supply to slow down the innovation process. But such boom and bust do not need to follow if there is no central bank to provide guidance or mislead everyone into the situation that investors are nervous about. 

Image credit: https://academy.aax.com/en/how-to-know-whether-were-in-a-bull-or-bear-market/

The Crypto market does not need to follow the stock market business cycle. However, it seems more apparent that the crypto market has closely tracked the stock market in recent months. 

With recent correlation, one may wonder why such correlation has happened?

Here are some insights:

1️⃣ Institutional investor

The institutional investors influenced the market cycle and crypto market. This is because institutional investors have more resources to pure into, unlike retail investors with limited money and resources.

 2️⃣ Whales are gone

There are fewer individual whale investors than institutional investors. The market condition is changing such that institutional investors can influence more than particular whales can.

3️⃣ Mining Business

The mining business has been integrated into the mainstream economy, which follows the business cycle more than it used to be.

Is the crypto market another stock market then?

No necessary. 

The crypto market has evolved since its creation, and it has started to embrace the stock market. However, the more global the adoption of crypto, it will form its business cycle with new coins created and busted.

It has not yet formed a new cycle but a similar to the technology cycle. However, we will see how the crypto market can eventually create a business cycle that de-couples from the stock market.

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