What is Crypto Winter?
What is Crypto Winter?
The price of Bitcoin dipped below $20,000, which is over 70% below its all-time high established in November 2021 and its lowest point since December 2020. The price of Ethereum dropped to below $1,100, its lowest level in more than a year and a half and more than 75% below its all-time high, which was also reached in November 2021.
Not just those cryptocurrencies have experienced a decline in value. Leading alternative currencies like Cardano and Polygon are both down more than 60% year to date, according to Forbes.
The term “crypto winter” is used frequently to describe a bearish cryptocurrency market. Similar to a bear market on the stock market, this phrase. A “crypto winter” is characterized by unfavorable sentiment and declining average asset values across a wide range of digital currencies.
Understanding a Crypto Winter
There have been multiple crypto winters in the past. For instance, cryptocurrency values dropped and remained much below previous peak prices from late 2017 to December 2020. However, a large crypto bull market began in December 2020, and values shot upward to new highs.
There are no generally acknowledged, precise standards on how much a cryptocurrency coin must cost. However, once one has started as it did at the beginning of 2022, market leaders and influencers frequently concur publicly.
Future price fluctuations cannot be predicted with any degree of accuracy due to the volatility of the cryptocurrency markets. Crypto winters do occur, so it’s a good idea for investors to be aware of this.
How Can You Predict a Crypto Winter?
When a crypto winter will start or finish is impossible to predict with any degree of certainty. Following cryptocurrency news and keeping tabs on community activity on social media sites like Twitter, Reddit, and Discord can reveal how investors are feeling and what they have planned to invest in.
A growing number of people think that the price of cryptocurrencies (in more recent years) follows a pattern of rising and declining every four years. It’s difficult to determine whether this is the consequence of a self-fulfilling prophecy or not, but many link this hypothesis to the timing of Bitcoin halving events, which take place about every four years (more specifically, every 210,000 blocks). According to the myth, this alters the market’s dynamics and ushers in a new market cycle.
Each time there is a Bitcoin halving, the amount of freshly created bitcoin that is awarded to successful miners as block rewards are halved. The majority of the market’s cryptocurrencies, including bitcoin, have reached fresh all-time highs a year after the 2016 halving when block rewards were reduced from 25 to 12.5 BTC. The block reward was reduced from 12.5 to 6.25 in the final halving event of 2020 by 50%.
Impact on Crypto Companies and Investors
Major cryptocurrency exchanges like Coinbase and Gemini have also felt the pain; early this year, both of them announced hiring freezes and layoffs. BlockFi, a lender, joined them by announcing its own layoffs. They all mentioned the start of Crypto Winter.
The largest U.S. digital asset trading platform, Coinbase, saw a decline in its stock of 86 percent from its 52-week highs at the beginning of the year. According to Bloomberg, the corporation planned to fire 18% of its workers around January. It hired around 1,200 people this year alone, roughly the same amount it currently plans to let go.
All of these changes have contributed to the current crypto winter, which is a phrase for a protracted market downturn. The value of all cryptocurrencies has decreased by nearly 60% since November 2021. Winters in the cryptocurrency market usually start with a sharp sell-off from Bitcoin highs.
According to research, the investor mindset is significantly impacted by crypto winters. Most investors are unsure of the optimum timing to enter the market at this point in the cryptocurrency price fluctuation and would prefer to liquidate their largest holdings and wait for when the market appears to be recovering.
When examining the price history of cryptocurrencies, it can be simple to identify a crypto winter because the slump may be accompanied by a double-digit percentage decline in cryptocurrency values. According to Igor Zakharov, CEO of DBX Digital Ecosystem, “the cryptocurrency market was already experiencing the effect of world events, especially the Russia-Ukraine crisis that produced volatility in global banking.” “Crypto winter had already started by the time TerraUSD and Luna failed and started a domino effect in the crypto world.”
How Long Does a Crypto Winter Last?
Top investors believe that we are about to see another excruciatingly long period of low prices. Avichal Garg, managing partner at Electrical Capital, a crypto investment company with more than $1 billion in assets, predicts that “the next two years are going to be pretty hard.”
AbdelMawla responded when asked how long the “Crypto Winter” may endure, “It might run anywhere from a year to two years, possibly even less. There has never been a macro environment as aggressive as the one we are in right now for cryptocurrency. Since the start of cryptocurrency, there hasn’t been any struggle against the fear of recession and regional conflict.
He added: “A lot of things have to be handled outside of crypto to have a fleeter picture of how long this might endure.” Crypto is currently heavily correlated with the stock market.
“The market was over-leveraged [and] flooded with over-hyped products, so it [the crash] truly needed to happen. The creation of truly new items, in the end, occurs during bear markets, he said.
To further complicate matters, in 2022, the worst year for the stock market since World War II, the correlation between cryptocurrencies and stock markets reached an all-time high.
The ongoing Russian-Ukrainian conflict, which has caused the biggest inflation in 40 years, as well as current monetary policies, are just a few of the factors preventing prices from rising.
When the winter will end is difficult to predict given current trends. The bitcoin market should soon heat up again, though, given the advantages that support it.
Crypto Winters are common; we’ve already experienced about eight of them, each of which has its own qualities. Bitcoin, however, increases much more when they stop. The same scenario is likely to occur after this Crypto Winter is through, even though past performance is not a reliable indicator of future results.