It’s time to face up to the fact that cryptocurrency has entered a “crypto winter.” Cryptocurrency’s reputation as a hedge against inflation has been damaged. Bitcoin and other cryptocurrency assets are notoriously volatile, with significant losses of 50% or more common.
However, the diehard crypto investors have gotten used to this magnitude of volatility and aren’t phased by it. They use the fall to purchase more. Even so, many individuals in the sector recall “crypto winter,” which ran from early 2018 to mid-2020. At that time, prices fell and stayed flat, while crypto innovation almost halted.
Crypto winter 2022 hits investors with a different outlook
The phrase “crypto winter” refers to a prolonged period when the price of cryptocurrencies falls steadily and uniformly, suffocating enthusiasm for the space. The crypto sector is in one of the most important periods in its young history. Since peaking at $69,000 in November 2021, bitcoin has plummeted 70%.
The term “crypto winter” is thought to have originated from the popular TV series Game of Thrones. The House of Stark’s motto was “Winter Is Coming.” It was supposed to warn that conflict may erupt in Westeros at any time, as scripted by George R. R. Martin.
With that in mind, the crypto market may be experiencing a lengthy period of adversity. According to analysts, the wheels of the emerging crypto winter were put in motion much earlier in 2022.
The current bitcoin price is 21,098.39 USD, according to CoinMarketCap, with a 24-hour trading volume of 33,501,585,477 USD. Bitcoin has fallen 3% in the last 24 hours. Furthermore, according to data from CoinGecko, the present bear market has seen 72 of the top 100 cryptocurrencies lose more than 90% of their all-time highs.
Within the previous week, a significant number of cryptocurrencies have lost a substantial percentage of their value as the overall crypto market cap tumbled 24%, from $1.3 trillion to $996 billion. The current crypto winter has been viewed differently than the last winter experienced in 2018.
The collapse of Terra, the second-largest DeFi ecosystem, last month left behind the most severe financial loss in history. Retail, institutional, and even corporate investors lost over $60 billion in UST and LUNA as market capitalization’s 7th and 10th largest tokens evaporated in days.
To add to the complexity, the correlation between cryptocurrency and stock markets hit an all-time high in 2022, when capital markets saw their worst year since WWII. The ongoing conflict between Russia and Ukraine, which has resulted in the highest inflation in 40 years, as well as current monetary policies, are just a few of the headwinds pushing prices lower.
Meanwhile, in early June, major cryptocurrency exchanges Coinbase and Gemini announced hiring freezes and layoffs. The price of Coinbase has dropped 86% from its 52-week highs, and the firm has stated intentions to lay off roughly 18% of its staff as the crypto market enters a bear market like the US stock market.
Several industry-wide causes caused the 2018 crypto winter. The high failure rate from the ICO period, overindebted individual investor profile, and concerns about forthcoming regulations created the ideal conditions for a crypto recession.
By 2021, crypto winter was a distant memory. BTC surged past $60,000 in the bull run, reaching an all-time high of $2 trillion for the first time in April of that year. Will history repeat itself four years later?
What is the way forward?
The dread of facing the prospect of a crypto winter is palpable. However, since 2018, when the last winter lasted about 18 months and hundreds of projects that emerged during the ICO era were frozen in our memories, the industry has experienced an accelerated transformation.
Several factors are influencing the current crypto winter. The combined influence of these macroeconomic variables appears to be causing a market recession.
The macroeconomic situation, together with the Terra collapse, might be too much for the crypto market, which is presently in a pullback phase from the Meta bull run. However, interest in the sector should not decrease as much as it did in 2018, owing to the degree of adoption.
Furthermore, it is important to consider that the cryptocurrency market consists of cycles. It is impossible for any sector to continue growing at such a rapid pace indefinitely. Financial stability may be developed by fluctuating and contracting markets.
A crypto winter, like a recession, is not inherently negative. For crypto novices, this might appear to be the end of the road. A cryptocurrency winter may seem like the bubble has burst, but this isn’t correct. The blockchain sector has already gone through several crypto winters and has proved resilient.
Despite the fact that the sector is in its first recession, the maturity shown across many verticals has the crypto space well-positioned to withstand a prolonged bear market. Elon Musk’s comment about it being “about right” seems accurate.
Recessions are not necessarily a bad thing. I’ve been through a few of them. And what tends to happen is if you have a boom that goes on too long, you get a misallocation of capital. It starts raining money on fools.
In the crypto market, the crypto winter is a period that should be accepted as an opportunity to declutter. Successful projects will continue to develop during challenging periods, whereas abandoned ones will fail. This is a welcome blessing in disguise, considering the number of fraudulent startups, Ponzi schemes, and rug pulls investors have experienced and lost billions of dollars in investments.
It’s not unusual for crypto winters to occur; we’ve already seen nearly eight of them, and each has its characteristics. But when they come to an end, bitcoin rises even higher. While past success isn’t a predictor of future outcomes, there’s a good chance that we’ll see the same result once this crypto winter is over.
With the recent trends, it’s hard to tell when the winter will end. However, considering the benefits that back up the cryptocurrency market, it shouldn’t be too long before it heats up again.