All About Crypto Seasonality

The total market capitalization of the top 100 cryptocurrencies has increased over the past seven years from approximately $5.2 billion to over $1 trillion. Currently, investors put their money into cryptocurrencies at a rate that makes them the fourth-most popular investment, following equities, mutual funds, and bonds. The market capitalisation of Bitcoin by itself is sufficient to place it among the top 20 largest corporations in the S&P 500. 

 

Since the cryptocurrency market has captured the attention of the rest of the investing world and eliminated some of the early doubts surrounding its sustainability, we have decided to take a more in-depth look at the factors fueling its incredible growth. 

What is Crypto Seasonality? 

The concept of crypto seasonality refers to the widespread belief that the price of Bitcoin will rise and decrease over a predetermined period, significantly impacting the cryptocurrency market as a whole. Bitcoin (BTC) was the first cryptocurrency ever created and is the industry’s most valuable digital asset. Because it was the first cryptocurrency, it will always have a significant amount of value attached to it, and all following coins will be connected to it in some way. Bitcoin, on the other hand, is not a stable asset. The value of the first cryptocurrency ever created fluctuates all the time, shifting by thousands of dollars in either direction at any given moment. 

 

It is anticipated that this volatility will reach a high once every four years before plummeting sharply, owing to the halving of the Bitcoin supply. The rewards for mining Bitcoin are halved every four years as part of a process known as "the halving", which is pre-programmed into the blockchain. This ensures that a smaller number of bitcoins are added to circulation with each mined block. The market tends to correct itself after halving the total provision of coins into circulation, with Bitcoin's price rising due to its more scarce nature. 

 

However, the price of Bitcoin tends to crash shortly afterwards as investors cash in their newly earned profits, which causes the market to overcorrect. As the price of bitcoin continues to fall, more investors begin to worry about the security of their holdings. They may sell their Bitcoin to move their money into alternative cryptocurrencies. 

 

Other factors affecting the value of cryptocurrencies: 

 

Node Count 

The node count reveals the number of operational wallets in a given network. It demonstrates to you how resilient the community is. A large node count can demonstrate a robust community, and a strong community increases the likelihood that a particular currency will be able to weather a potential crisis. Second, the number of nodes in a network may be used as an indicator of both the strength and decentralization of the network, which are critical components in crypto. 

 

Production Cost 

Another component that affects the value of cryptocurrencies is the cost associated with their creation. Miners utilize specialized hardware or servers daily to produce new tokens and validate new network transactions. This process is known as "mining." Miners are compensated for their efforts with virtual tokens and a portion of the network fee. The network activity of miners makes it possible for cryptocurrencies to continue functioning. 

 

Therefore, an increase in the costs associated with mining may increase the value of the cryptocurrency. It makes no sense for miners to waste their resources mining new cryptocurrency tokens if the rewards are insufficient to cover the expenses and earn them a profit. Miners should not mine new cryptocurrency tokens if the incentives are not large enough. However, this isn't always the case and isn't consistent across different cryptocurrencies, so it's important to do your research before committing to anything. 

 

Crypto Exchanges 

The availability of a token on most cryptocurrency exchanges will likely increase the number of people purchasing and utilizing that token. If you need two or more exchanges to trade any cryptocurrency token, you will be required to pay a fee for each exchange, which will increase the overall cost of the investment. 

 

Inflation, Tax and Market Trends

Some crypto enthusiasts assume that top cryptocurrencies like Bitcoin, Ethereum, and BNB are less sensitive to the effects of external market variables. However, this may not be the case. During the first two weeks of April 2022, the value of these and other key tokens experienced a steep decline, and the overall cryptocurrency market shed approximately 400 billion dollars worth during that period. To make matters even worse, market analysts believe that a "catastrophe" in the financial markets might cause cryptocurrency values to drop even lower. 

 

Although Bitcoin's price has fluctuated above and below a threshold of $40,000 for the majority of the year 2022, the most recent price drop serves as a reminder to investors that decentralized digital tokens may still react strongly to factors such as inflation, taxes, and the overall performance of the market as a whole. Recent developments give rise to the possibility that the assertion that cryptocurrencies can function independently of the many external market factors may not be accurate. When looking for potential correlations between cryptocurrency performance and other issues, investors should look at things like inflation, the policy of the Federal Reserve, and tax season.