The cryptocurrency market experienced an explosive rise between March 2020 and November 2021, with Bitcoin and altcoins reaching all-time highs.
During this period, Bitcoin surged by more than 2,600%, while several altcoins like Solana (SOL), Fantom (FTM), Avalanche (AVAX), and Terra (LUNA) posted gains of 500x or more.
According to a recent article by renowned crypto analyst Miles Deutscher on X, this bull market has been fueled by a perfect storm of factors, including aggressive monetary stimulus, lockdowns that kept people at home, and the widespread distribution of economic stimulus checks.
Deutscher stressed, however, that as with all financial bubbles, the party didn’t last. The market peaked in November 2021, and the subsequent collapse of Terra’s UST and LUNA holdings in May 2022 marked the beginning of a long and painful downturn.
This crash, combined with the aftermath of bankruptcies of companies like 3AC, Celsius, BlockFi, Voyager and the infamous FTX, has eroded investor confidence in the market.
Many retail investors, who had entered the market during the latter stages of the bull run, were financially burned and exited the market, while others who had not invested at all became more skeptical of the sector.
In light of all these incidents, Miles Deutscher has now wondered whether the cryptocurrency market could still experience another 2021-style bull run.
Will the 2021 crypto frenzy repeat itself?
In a detailed article published on X on August 28, Deutscher revealed that despite the significant losses and the exit of many retail investors, there are signs that the market could be preparing for a recovery.
The approval of a Bitcoin spot exchange-traded fund (ETF) by BlackRock, the world’s largest asset manager, in January 2024 was a game-changer.
According to Deutscher, this approval signaled to the market that institutional interest in Bitcoin is strong, as it sparked a rally that pushed Bitcoin to new all-time highs of $73,000.
However, despite Bitcoin’s strong performance, Deutscher pointed out that altcoins have not followed suit as they did during the 2021 bull run.
The analyst revealed that several factors are contributing to this divergence, including the fact that much of the new liquidity is flowing into Bitcoin ETFs rather than into the broader altcoin market.
Additionally, the large number of new altcoin projects has led to a dispersion of liquidity, making it harder for individual cryptocurrencies to recover. Another critical factor is the psychological impact of the 2022 crash.
Many retail investors who were burned in 2022 are hesitant to re-enter the market, leading to a lack of fresh capital. Deutscher explains:
Most of the players in the current market are seasoned veterans. Altcoins are considered ghost software, people distrust even well-meaning project founders (who can blame them). This makes trading extremely PvP and much more difficult. There is no constant flow of new capital to support the market, as there was in 2021. We are all essentially fighting for the same dollars.
What could bring back retail?
According to Deutscher, several conditions must be met for retail investors to return. First, if Bitcoin breaks new all-time highs, it could revive interest in the market, as has happened in previous cycles. This, as the analyst explains, could lead to renewed optimism and a possible rotation into altcoins.
Additionally, the speculative nature of the cryptocurrency market means that retail 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 current challenges, the infrastructure supporting the cryptocurrency market has improved significantly since 2021, Deutscher said, adding:
I hope this will make it easier to create a few top dApps. Crypto only needs 2 or 3 of these to take off to facilitate mass adoption.
Overall, the analyst concluded that while the next bull run may not be identical to 2021, the potential for significant gains remains if the right conditions are met.
Featured image created with DALL-E, chart by TradingView
