The cryptocurrency market experienced a massive surge between March 2020 and November 2021, with Bitcoin and altcoins reaching unprecedented highs.
During this period, Bitcoin’s value rose by more than 2,600%, while several altcoins such as Solana (SOL), Fantom (FTM), Avalanche (AVAX), and Terra (LUNA) recorded gains of 500x or more.
According to a recent study mail According to popular crypto analyst Miles Deutscher on X, this bull market was driven by a perfect storm of factors, including aggressive monetary stimulus, lockdowns that kept people at home, and the widespread distribution of economic stimulus checks.
But Deutscher notes that the party, as with all financial bubbles, was short-lived. The market peaked in November 2021, and the subsequent collapse of Terra’s UST and LUNA in May 2022 marked the beginning of a long and painful decline.
This collapse, coupled with the fallout from the failure of companies like 3AC, Celsius, BlockFi, Voyager, and the infamous FTX, has eroded investor confidence in the market.
Many individual investors, who entered the market during the final stages of the price rally, got burned financially and left the market, while others who did not invest at all became more skeptical of the industry.
Given all these incidents, Miles Deutscher now weighs whether the crypto market is still capable of experiencing a 2021-style bull run again.
Will the cryptocurrency craze repeat itself in 2021?
In a detailed post uploaded to X on August 28, Deutscher revealed that despite the heavy losses and the exit of many retail investors, there are signs that the market may be preparing for a recovery.
The approval of a cryptocurrency exchange-traded fund (ETF) by BlackRock, the world’s largest asset manager, in January 2024 was a “game changer.”
According to Deutscher, the approval signaled to the market that institutional interest in Bitcoin is strong, sparking a rally that pushed Bitcoin to new record highs of $73,000.
However, despite Bitcoin’s strong performance, Deutscher stressed that altcoins have not followed suit as they did during the 2021 bull run.
The analyst revealed that there are several factors contributing to this divergence, including the fact that much of the new liquidity is being directed towards Bitcoin ETFs rather than flowing into the broader altcoin market.
In addition, the sheer number of new altcoin projects has scattered liquidity, making it difficult for individual coins to recover. Another crucial factor is the psychological impact of the 2022 crash.
Many individual investors who suffered losses in 2022 are reluctant to return to the market, leading to a shortage of new capital. Deutscher explained:
Most of the current market participants are veterans. Altcoins are seen as nothing more than sham programs, and people don’t trust even the well-intentioned project founders (who can blame them). This makes trading more of a player-versus-player game, and more difficult. There is no endless stream of new capital to support the market, as there was in 2021. We are all essentially fighting for the same dollars.
What could bring the retail sector back to the forefront?
According to Deutscher, for retail investors to return, several conditions must be met. First, Bitcoin breaking new highs could reignite interest in the market, as it has in previous cycles. As the analyst explained, this could lead to renewed optimism and a potential shift to altcoins.
Additionally, the speculative nature of the cryptocurrency market means that individual investors may return if they see significant gains. Finally, for the market to sustain long-term growth, real use cases for cryptocurrencies must emerge.
Despite the current challenges, the infrastructure supporting the cryptocurrency market has improved significantly since 2021, Deutscher noted, adding:
I hope this helps make it easier to build some great decentralized applications. Cryptocurrencies only need 2-3 decentralized applications to take off in order to make it easier to spread widely.
Overall, the analyst concluded that while the next rally may not be as strong as 2021, the potential for significant gains remains if the right conditions are met.
Featured image created using DALL-E, chart from TradingView
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