Is there a way for the crypto sector to avoid Bitcoin’s halving-related bear markets?

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There is good reason to be afraid. Previous bear markets have seen declines of over 80%. While holding tight may hold wisdom among many Bitcoin (BTC) extremists, altcoin speculators know that handing over diamonds can mean near (or total) annihilation.

Regardless of the investment philosophy, in risk-free environments, sharing escapes from space quickly. The purest of people among us may see a bright side as destruction clears the forest floor of weeds, leaving room for the most powerful enterprise to flourish. Though, without a doubt, there are many seedlings lost that would grow to great heights by themselves if given the chance.

Investing and caring for the digital asset space is water and sunshine into a fertile ground for ideas and entrepreneurship. Less sharp declines serve the market better; The best garden of the desert.

A Brief History of the Bear Markets for Cryptocurrency
In order to solve a problem, we must first understand its catalyst. Bitcoin and the broader digital asset space has weathered a number of bear markets since its inception. By some accounts, by one’s definition, we’re currently at number five.

The Five Bear Markets for Bitcoin. Source: TradingView
The first half of 2012 was fraught with regulatory uncertainty and culminated in the shutdown of TradeHill, the second largest bitcoin exchange. This was followed by hacks by Bitcoinica and Linode, which led to the loss of tens of thousands of bitcoins and toppled the market by 40%. A default from Bitcoin Savings and Trust Ponzi Scheme sent the price crashing again, down 37%.

Enthusiasm for the new digital currency did not remain pent-up for long, as BTC surged again to find a balance at around $120 for the better part of the following year before surging to over $1,100 in the last quarter of 2013. Equally, the capture of the Silk Road by The DEA, China’s central bank ban and scandal over the closure of Mount Gox, plunged the market into a fiercely prolonged 415-day bounce. This stage lasted until early 2015, and the price fell to only 17% from the previous highs in the market

From there, growth was steady until mid-2017, when enthusiasm and market mania sent the price of bitcoin into layers, peaking in December at nearly $20,000. Eager profit taking, more hacks and rumors of countries banning the asset once again crashed the market and BTC fell into a doldrums for more than a year. 2019 brought a promising escalation to nearly $14,000 and hovered well above $10,000 until the BTC pandemic fears subsided below $4,000 in March 2020. It was an astonishing 1,089 days – nearly three full years – before the market rebounded. Cryptocurrency reached its highest level in 2017.²

But, then, as many in the space have mentioned, the “brrrrrr” money printer went. Global expansionary monetary policy and fears of mandatory inflation have led to an unprecedented increase in asset values.

Bitcoin and the larger crypto market found new highs, surpassing nearly $69,000 per BTC and over $3 trillion in total market capitalization for the asset class in late 2021.²

Total depreciation of the cryptocurrency market capitalization. Source: TradingView
As of June 20, the pandemic liquidity has dried up. Central banks are raising rates in response to alarming inflation figures, and the larger crypto market holds a total investment of $845 billion in relatively negligible terms.² More worryingly, the trend points to deeper and longer crypto winters, not shorter, befitting a more mature market. Undoubtedly, the main reason for this is the inclusion and speculative obsession around high-risk startups that make up around 50% to 60% of the total market capitalization of the digital market.²

However, altcoins are not entirely to blame. The crash of 2018 saw the price of Bitcoin drop by 65%. The growth and adoption of major crypto assets has triggered regulatory alarms in many countries and questions about the supremacy of national currencies ensued.

How to mitigate risks in the market?
So, risks, of course, are driving this unexplained bearish volatility. We are in a risk free environment. Thus, our young and fragile garden withers first among the deep-rooted asset classes of conventions.

Portfolio managers are all too aware of this, and they are required to balance a small portion of the cryptocurrency investment with a larger slice of safe haven assets. Retail and professional investors alike often drop their entire bags at the first sign of a bear, returning to traditional markets or into cash. This reactionary strategy is seen as a necessary evil, often at the cost of incurring short-term capital gains tax, and at risk of missing out on unexpected big reversals, which are preferred over the devastating and prolonged declines of the crypto winter.

Does it have to be so?

How can an asset class driven by this speculative promise remove enough risk to keep interest and investment alive in the worst of times? Bitcoin heavy crypto wallets do just that

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