Recently, cryptocurrency markets have fallen significantly, wiping out nearly billions of dollars in value. Due to moves like these, many people are constantly wondering what the reasons are and what the future really holds for these digital assets. Jason Simon, an expert on cryptocurrency and volatile market behaviors, helps to understand why cryptocurrency values change over time.

Keep in mind that Bitcoin (BTC)h has successfully survived many boom and bust market cycles. Looking at the historical perspective, it could be seen that BTC has gone through a well-defined cycle, marked by new participants in the cryptocurrency industry, including institutional investors, financial providers, a lot of expectations, new highs, and then pullback.

Every time there is a market correction or consolidation, its fiercest critics argue that BTC is finished, but its supporters find a new opportunity to buy on the way down. Asset price fluctuation is a normal market condition and the same is true for stocks or bonds. The recent massive sell-off in tech stocks and bonds was spurred by inflationary fears.

“One could argue that there has been a shift in market sentiment that has resulted in a correlation between volatile assets and a broad pullback in riskier assets,” notes Simon. “However, traditional assets and instruments differ in their volatility compared to cryptoassets and their derivatives which carry a highly speculative nature and this risk needs to be considered. Although BTC’s share of the cryptocurrency market is still large, it is no longer dominant and there are other cryptocurrencies claiming their significant share.”

A transformation of the cryptocurrency market can be observed in progress. Last year Ethereum’s (ETH) share had reached almost half the size of BTC’s market cap, dramatically expanding the network. This change in fortunes and popularity is partly explained by the underlying technology of ETH supporting the emerging DeFi (decentralized finance) industry and the rise of NFT (non-fungible tokens), which is a unique digital token for assets that serve as a digital certificate of ownership right.

The main feature of ETH is the smart contract functionality that enables design, architecture, and implementation for any asset or application without the need for a third party. With the accelerated use of the ETH network, some specialists believe that it has unlimited potential.

As another important point, the growing popularity of so-called “stable coins” that can be exchanged for a fiat currency should also be noted.

Some stable currencies have been sponsored by large technology, telecommunications, or financial companies and, according to Simon, seem to have the potential to scale quickly and be adopted massively, which could pave the way for faster and cheaper payments.

“Stable currencies aim to hold their value, usually against a reference asset, meaning they can be used more reliably as a medium of exchange or store of value, although they can also be used to facilitate investment or trading activities,” Simon explains.

In addition to restructuring, different investors have different objectives and different time horizons, where some have a short-term view and like to profit considering the high volatility of cryptoassets. Still, others tend to have a more long-term view.

Some regulatory concerns, such as the strengthening of policies on mining operations and commercial transactions or country-specific circumstances, e.g., tax reforms, could play a role and impact the overall market. And, as with any other asset, the market reacts to liquidation and its consequent fall in price.

“Blockchain technology has the potential to revolutionize finance,” Simon concludes. “We believe that over the next five years, many of the underlying business processes will be transformed and optimized with the implementation of technology, which will improve security and maintain trust among stakeholders.”