Should we fear the crypto winter?
Crisis times in the crypto market, as well as in the world, inevitably repeat again and again. They are a kind of challenge and test of strength: weak players are weeded out, and the position of those who adapt to new realities becomes stronger.
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A tough bearish dynamic shows the actual value of individual digital assets, companies, and projects. It unveils them. Those who have been at the peak of popularity for a long time can suddenly find themselves sidelined. In contrast, less visible assets and companies will become stronger and draw attention to themselves.
In the end, those who are helpful in the new conditions, who have calculated more risks or prepared for a depressive period, survive. So, fasten your seat belts and try to draw important lessons from this long downfall.
What can be expected from crypto winter?
Crypto winter is a significant reduction of prices in the cryptocurrency market, as well as a period that is characterized by prolonged stagnation and a sideways trend. At this time, the world is spinning out of control, giving way to chaos and panic.
The good news is that the cryptocurrency market has already experienced significant drops and successfully got out of them. Recall that before falling in 2018 to $3,000, Bitcoin achieved a maximum of $19,500 in 2017. That is, it has already fallen by 83% and managed to rise to more than $64,000 in 2021.
Pessimistic scenarios suggest that the new crypto winter can be much more catastrophic and will freeze the crypto industry forever. The arguments are that after a big crash and massive bankruptcy, people simply won’t invest in crypto, which will lead to a very shallow buying pool.
But there is also a place for optimism. According to a new report from Bank of America (BofA), concerns about the crypto winter haven’t influenced investors’ interest in this sector. The advanced customers of the bank believe that the cryptocurrency ecosystem is not going anywhere, and the regulator is optimistic about the widespread implementation of the crypto.
As an argument, bank representatives suggest recalling that the most innovative projects were created during market downturns. Also, BofA experts believe that the bearish dynamics observed in recent months is useful for the digital currencies’ long-term development.
Why is it happening?
There are a lot of reasons. One implies the other, and the main factor leads to subsequent ones. Let’s start with the fact that market processes are wave-like: growth is inevitably followed by a recession, and adverse political and economic events affect their depth and duration in the long term.
In 2022, Ukraine is facing a full-scale bloodthirsty war unleashed by Putin’s Russia. For many political elites, this was not a surprise. Moreover, they counted on a quick victory for Russia and could not imagine that Ukraine would defend its right to freedom and independence to the last. This turn of events was unexpected and led to the fact that the world economy began to sag against the backdrop of a long war.
The stock market has been trading in the red lately. The S&P 500 decreased nearly 21% in 2022, while the Nasdaq fell by 31%. Since there is less liquidity in the financial market and inflation has increased, speculative assets, including cryptocurrencies, began to decline in price.
Ultimately, when the cryptocurrency market was already weakened, the Terra blockchain project collapsed, and investment hedge fund Three Arrows Capital went bankrupt, the Celsius lending platform began to experience difficulties as they were intertwined. This significantly accelerated the process of widespread sale of various crypto assets.
The first signs of crypto winter
The first non-obvious sign that the market will start to fall soon appeared back in 2021. Against an unprecedented infusion of liquidity into the financial markets by the Federal Reserve System, the crypto market was artificially fueled and entered a phase of extraordinary growth. When the injections stopped, it began to decline gradually.
A clear indicator that the crypto winter began was the fall of bitcoin below the psychological mark of $25,000. BTC fell by 56% from its peak in November 2021, while ETH decreased by about 63%. Even experts from Andreessen Horowitz, well-known cryptography proponents, suspect the beginning of crypto winter. Overall, the cryptocurrency market has decreased by 60% since November 2021, dropping from $3 trillion to less than $1 trillion.
As a result, shares of the largest cryptocurrency exchange Coinbase declined by 86% from their highs. In turn, the CEO of the Gemini crypto exchange announced that the industry is entering a period of reduction called the crypto winter.
What to do during the fall and stagnation of the crypto market?
As cliché as it sounds, you need to be patient and wait for a new upturn. Many retail investors treat the downturn as an opportunity to buy cryptocurrency at a lower price. They are hoping for a revival in the sector once the global problems are over.
One thing is for sure – blockchain technology is definitely not going anywhere. On the contrary, it may become more in demand in other spheres.
Crypto winter is also a time to explore GameFi and DeFi trends actively. It’s time to pay attention to new successful projects and business integration into Web3. Also, don’t forget about NFT technology, the application of which can go far beyond digital art in the future. Observe, analyze, draw conclusions, and most importantly, don’t panic!
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