Investors celebrated as the leading cryptocurrency Bitcoin reached its all-time high at the beginning of 2022. Suddenly, the crypto winter surfaced, causing a series of plunging assets that greatly affected investors. The unfortunate event led to doubts and confusion in the market. To some, this event was their first introduction to the crypto winter. This begs the question: What is crypto winter? This article will take you through all you need to know about crypto winter.
What is crypto winter?
Crypto winter refers to a period when the market experiences a general long-term downtrend in assets. It is usually characterized by plummeting prices and low performance. Crypto winter can also be linked to bear markets, where prices of assets decrease across the stock market.
Crypto winter is also viewed as the decrease in interest from retail investors. Since investors play a major role in the market, a hard hit is taken when their contributions and interests are depleted. This, among other factors like delivery of fewer projects, could cause a market to remain stagnant over a long period. A crypto winter can thereby arise for these reasons. Although crypto winters leave the market in a deplorable state, the best products are built during this period.
The term “crypto winter” originated from the hit show “Game of Thrones”. If you are familiar with the show, you should be conversant with their continuous reference to winter. For context, a popular phrase in the show is “winter is coming”. The crypto community adopted this concept to describe the deplorable state of the market.
Just like bear markets, a crypto winter is inevitable. Considering the crypto market volatility, there will always be highs and lows. Lows in some assets could cause a ripple effect and lead to a relative fall in other assets. Other factors like the news can lead to price drops causing a crypto winter.
When does crypto winter start?
Crypto winter begins when there is a price drop from an all-time high, and the price continues to plummet for a while. It starts when there is a huge sell-off from a notable uptrend.
One of the earliest crypto winters occurred from the end of 2013 and continued its bearish run to 2015. Bitcoin had a market high of $1154 in November 2013. The subsequent months revealed drastic plunges in value. In the course of two years, Bitcoin had a price decrease of 67.5% from its all-time high in November 2013 to November 2015.
Bitcoin had a massive run as it had a 30% increase in seven days in 2017. The run continued for a while in 2018 with periodic market fluctuations. Then investors began to sell off their stakes. Other investors followed suit due to the jarring plummeting price indications. The year ended with a 73% price decrease. The crypto winter of 2018 served as a reality check to investors that the market is a lot more volatile and sporadic than they imagined.
Another example of crypto winter can be seen in the historical price history of 2021. The market had a bullish run from the start of the year and even hit an all-time high of over $60,000 in the middle of April. Subsequently, a downtrend began to take its course, and the value of Bitcoin decreased by 37% in a span of one month from May to June.
How long does crypto winter last?
To determine the duration of crypto winter, you need to accurately gauge its genesis. Recall that you cannot just declare a crypto winter with little fluctuations. The general rule of thumb in determining the start of a crypto winter preceding its duration is to look out for the asset’s all-time high. Then monitor the price trend and movements following the market’s high. From the market behavior in 2018, we observed that the crypto winter lasted for one year. Experts say that a crypto winter can last from one to two years. Notwithstanding, crypto winters are not limited to many months of bearish patterns.
Due to the way crypto is still very nascent in the world, these events still come as a shock to many. However, some of these events are inevitable because crypto is still gaining ground and has its unstable quirks. There are different categories of people in the market, many of which are confused and still new to the scene. Various categories affect the market in various ways. That aside, external factors could contribute as well, like the news and even crypto whales. Another major factor that is tied to crypto is the stock market. A big shake in the stock market could also cause a relative shake in the crypto market.
Cryptocurrency versus inflation
When inflation knocks on the door, the crypto savvy runs on the covers of their digital assets. It is a general notion that crypto is not affected by inflation since it is not a real-world asset. A bonus point especially goes to decentralized cryptocurrencies like Bitcoin.
Bitcoin is known to be resistant to inflation because it is void of the forces and regulations of the real world. The supply of Bitcoin is capped at 21 million. In the Central Bank, an excess amount of money can be minted, leading to excess supply and then inflation. As regards crypto, the supply of Bitcoin is capped at 21 million, so excess Bitcoin cannot be produced on command.
Following the recent activities of Bitcoin, a cloud of doubt have surfaced on the faces of many investors and experts. The recent crypto winter has corresponded with the tragic bear run in the stock market. We have recently noticed that the correlation of Bitcoin to the stock market is even more pertinent than its correlation to Gold. Highs on the U.S stock market have caused relative highs in Bitcoin and vice versa.
However, other cryptocurrencies are more deflationary compared to Bitcoin. These cryptocurrencies are designed for supply to reduce periodically, causing price increases provided that demand is constant.
Are we in a crypto winter?
At the time of writing, most experts have attested that we are in a crypto winter. The recent events served as a call for concern because such behaviour had not been noticed for a while in the market. Hence, investors are already preparing strategies for when the market finally bounces back.
The situation of the current market shows that the crypto winter is here. This is not a shocker, as we have seen Bitcoin hit a new low of $18,067 in June 2022. To put that into perspective, Bitcoin has not touched the $18,000 mark since December 2020.
The reason for the crypto crash in June 2022 is fears from investors. Other scares due to inflation in the real world and regulations have caused investors to sell off their assets. Other astonishing events that led to a mass panic from investors include the Terra-Luna crash.
But in the face of the bleeding market conditions, staying calm and acting rationally is always a good option. Keep in mind that there might be even more dips following a present one. Be informed on the risk factors and invest wisely.
When was the last crypto winter?
The crypto market took a hit in 2021 as it experienced a bleeding market. Negative news and fears of regulation preceded the market crash. For instance, a top crypto exchange, Binance, got into a mess with the Financial Conduct Authority in the UK. The platform was blacklisted by the body and other financial institutions acted accordingly by cancelling payments through Binance on their platforms.
Major news that shook the crypto sphere in May 2021 was that of Elon Musk. He made it public on Twitter that his company, Tesla, would stop accepting Bitcoin payments. The billionaire explained his concerns that Bitcoin has on the environment. With a power-consuming process like the Proof of Work, environmental concerns are bound to happen sooner or later.
The period of June 2021 shook investors with the ban of crypto mining by the Chinese government. Financial institutions in China also put a halt to accepting payment through this means. Like much other negative news, this caused fear among investors causing a massive sell-off.
What to do in a crypto winter?
In the times of crypto winter, subsequent steps might seem confusing. Here are some things you can do in a crypto winter:
- Recurrent investment: This entails investing a certain amount of money periodically. The low prices serve as good entry points in preparation for the next bullish trend. Investing periodically, either weekly or monthly, helps to hedge risks. Strategies like dollar-cost averaging can be employed in recurrent investment.
- Building: One of the best times to build is during troubles in the market. This is because great companies and products have been created during cornerstone movements. So you can use this low as an opportunity to build something revolutionary.
Like crypto has its highs, keep in mind that it also has its lows. When the season of crypto winter comes knocking on the door, ensure that you take the right steps and you don’t panic. Crypto winters are not a negative for everyone. It can serve as a good entry point following the number one rule of crypto: “Buy the dip”. It also separates quick cash grabbers from the real innovators and builders of the crypto space. So amid the ruckus of lows and unfavorable sight of reds, take this as one of the many seasons of crypto.
Founder & CEO of Vestinda.
Compacting years of investment portfolio building into just a few minutes.