How to succeed in a bear market

In 2022, the cryptocurrency market is experiencing a prolonged correction. In the first 6 months, the capitalization of the industry declined 2.5 times (from $2.16 trillion in January to $882 billion in July). Bitcoin lost 58% of its value and is trading at $19,74k. Cryptozyme started unexpectedly and took investors by surprise. Major players were also unprepared for the rapid reversal of the trend. There was a wave of bankruptcies among leading companies (Three Arrows Capital, Voyager Digital, Celsius).

Experts predict that crypto exchanges could be next. Most services faced a drop in trading volumes, amplified by the decline in digital currencies. In May, Coinbase laid off 18% of employees to cut costs. Poloniex stands out against this backdrop. The exchange is standing firm and is even preparing to launch a new trading system.

Crypto-winter 2022: Causes and Features

The young digital coin market has already experienced several major corrections. The last such event occurred in 2018-2020. Then Bitcoin lost half of its capitalization. In 2022, the market sank even deeper. In the first 6 months the capitalization of BTC has already fallen by 56.2% (from $891.04 billion in January to $377.22 in July), the rate of the coin fell by 58%. Following the flagship, altcoins are getting cheaper. Analysts predict that more than half of cryptocurrencies will lose 75-90% of their value by the end of 2022.

The prolonged period of low prices for digital currencies is called the crypto-zima. In 2018, the market crash was associated with the bursting of the ICO bubble. In 2022, the trigger was external factors:

• Rising inflation in developed countries.
• Tightening policies of the U.S. Federal Reserve and other central banks.

In addition to market fundamentals, the situation was exacerbated by internal problems:

• Stablecoin destabilization. The collapse of TerraUSD and the LUNA token tied to it shook the industry. Investors lost confidence in stable coins.

• Mass liquidation of margin positions. Thanks to the emergence of DeFi, depositors have accumulated significant amounts of leverage. Cryptocurrency funds and leverage platforms were funded primarily by private investors. They invested for profit. When asset prices fell, the deals were forcibly liquidated. Funds, companies, and private investors suffered serious losses.

• Bankruptcy of major platforms. The Celsius credit network suspended payments in June. The service attracted private investment at high interest rates and lent money to traders. Part of the profits were used to pay depositors. When the crisis hit, the company faced liquidity problems.

• A similar fate befell Three Arrows Capital, a Singapore-based hedge fund, and Voyager Digital, a brokerage company. The former failed to meet BlockFi’s margin requirements, the latter owed Alameda Research.

• According to BitInfoCharts, the current cryptozyme has already wiped out nearly 82,000 Bitcoin millionaires. In November 2021, the service recorded 108,88 thousand wallets with balances over $1 million. By early July 2022, their number was down 75% to 26,28 thousand.

Poloniex stability in tough market times

Some analysts believe cryptozyme could drag on until 2025, given the cyclical nature of the market and future halving. However, most expect a recovery in 2023. The current situation is critical for many crypto exchanges. But not for Poloniex. While other platforms are cutting costs, one of the oldest crypto-exchange is preparing to launch a new trading system and increase the number of staff.

The exchange was told of its stability by Justin Sun at a global staff meeting in July 2022. According to the CEO, Poloniex has enough investment and resources to continue to grow even during market downturns. The service has not suffered from falling rates thanks to the reliability of external and internal operations, as well as a properly chosen risk management strategy.

Unlike many other platforms, Poloniex did not conduct transactions with high leverage. The exchange used its own capital for transactions. This allows San’s team to be optimistic about the future of cryptocurrencies. The developers continue to prepare the launch of a new trading system and other planned products in July.

The company also intends to double its headcount by the end of 2022. Justin Sun is banking on talented developers, managers and technical staff. The businessman is convinced that these tactics allow Poloniex to remain one of the leading players in the industry.

Which exchanges may disappear from the market in 2022

Amid the crypto winter, investors began withdrawing funds from trading platforms to standalone wallets. According to Glassnode, the balance sheets of leading exchanges have shrunk by 20% since the beginning of 2022. Smaller services may have been hit harder. Experts note: the decision of users was influenced, including staff layoffs by exchanges (Coinbase) and bans on the withdrawal of assets (Coinflex, Vauld).

Due to the outflow of funds on the platforms, the volume of transactions decreased. Most exchanges survive on operational transactions, so the decrease in turnover has destabilized them. Experts estimate that the current crypto winter has been the toughest in history. Cryptocurrency companies are being severely tested. Many of them may leave the market due to lack of liquidity or use of high leverage.

Conclusion

According to the June Glassnode report, the 2022 bear market was the toughest in cryptocurrency history. The leveraged ecosystem has come under intense pressure from external economic factors – rising inflation and rising interest rates.

Researchers also identified a trend of overcollateralization of redeemable collateral.

The credit bubble burst as a result of the sharp decline in cryptocurrency prices, and margin positions were liquidated. Private investors and companies suffered. Some major players went bankrupt. Exchanges lost a significant portion of working capital.

However, Poloniex has remained stable in a falling market and is even preparing to expand its structure. According to CEO Justin Sun, the service does not conduct transactions with high leverage, but relies on its own capital. This strategy allows Poloniex to stay afloat in any market changes.