‘Extreme fear’: Cryptocurrency’s uncertain future after market crash

The world’s eyes are on the cryptocurrency market after the emotional rollercoaster of last week – but is it a good a time to invest?

After seven days that saw investors lose millions in a crash that wiped more than 50 per cent from bitcoin’s all-time high, the future of cryptocurrencies suddenly looks a lot less certain than it did this time last week.

After soaring to over $65,000 per bitcoin in April, the world’s biggest and most well-known digital currency dropped to just under $30,000 before making a small recovery.

The slight uptick at the end of the week is fuelling optimism among many investors who are hanging onto their coins and remaining upbeat that a recovery is on the horizon.

However, some analysts say last week’s crash could be just a little taste of what’s to come, labelling the crypto market a “bubble” that could pop at any time.

Over the past week, the bitcoin and crypto “fear and greed index”, where a value of 0 means “extreme fear” while a value of 100 represents “extreme greed,” fell to 11 – down from over 90 earlier this year.

The index, calculated by Germany-based software comparison company Alternative using market volatility, volume, social media sentiment, media trends and bitcoin’s dominance over the market, currently suggests “investors are too worried,” which “could be a buying opportunity.”

“The crypto market behaviour is very emotional,” the experts behind the index said.

“People tend to get greedy when the market is rising which results in FOMO [fear of missing out]. Also, people often sell their coins in irrational reaction of seeing red numbers.”

They say the index is about trying to warn investors away from making emotional overreactions to market trends.

Before last week’s crash, the index showed investors were getting “too greedy” – that means the market is due for a correction.

In other words, last week’s crash, fuelled by Tesla CEO’s Elon Musk doubts about bitcoin and China’s crackdown on bitcoin operations – could actually be a good thing.

Rebalancing ‘healthy’ for crypto market

Some in the crypto community feel this correction is a rebalancing, needed for the market to move higher over the long term.

“The large falls in valuations seen this week are, in one way, healthy as they enable the market to clear excess speculative positions and consolidate before its next phase of expansion,” Anatoly Crachilov, the chief executive of investment manager Nickel Digital, told Forbes.

RELATED: Cryptocurrency founder’s grim ‘bubble’ warning

It has been a rough old week for crypto investors. Picture: AFP

He pointed to bitcoin’s “122 per cent gain from the beginning of the year” through to April.

“We have seen this pattern time and again across multiple cycles and expect this to remain in place until the market matures and achieves a larger involvement of institutional capital,” he added.

Mr Crachilov is one of many investors who believe bitcoin and other currencies will bounce back.

Pete Humiston, manager of Kraken Intelligence, part of the US bitcoin and crypto exchange Kraken, said on Twitter that although the value of bitcoin had dropped, the funding rate had picked back up in the past few days.

Shorts are still paying longs...

But the #bitcoin funding rate has almost completely mean reverted up to 0%. 👀🐂🚀 pic.twitter.com/V1ND1qiBW5

— Pete Humiston (@1337_pete) May 22, 2021

He said this is a sign that the market is “resetting” – paving the way for a recovery.

However, other analysts are warning that cryptocurrencies could implode at any time, leaving everyday investors in a world of strife.

Crypto billionaire and founder of digital coin ethereum, Vitalik Buterin, said late last week he believed cryptocurrencies are in a bubble and it is “notoriously hard to predict” when it will pop.

“It could have ended already,” Mr Buterin said. “It could end months from now.

“We’ve had at least three of these big crypto bubbles so far. And often enough, the reason the bubbles end up stopping is because some event happens that just makes it clear that the technology isn’t there yet.”

Meanwhile, the ABC’s business editor Ian Verrender said investors should be “prepared to lose everything”.

“Bitcoin is a bubble,” he wrote in analysis piece. “While its value has risen exponentially in recent years, its incredible volatility makes it anything but a safe harbour. Given it isn’t much good for transactions and holds no proprietary technology or intellectual property, about the only thing it is good for is speculation.

“Who knows, it could go beyond $US100,000 [$A129,999] sometime in the near future. But if everyone suddenly decides to abide by the rules of economics and starts acting rationally, be prepared to lose everything.”