What Is Crypto Winter? – Forbes Advisor

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Since the stable currency meltdown in early May, all eyes have been on Bitcoin (BTC). It is the key to the cryptocurrency market, and the price of BTC has struggled to stay close to the $ 30,000 psychological threshold.

But it’s not just Bitcoin that is feeling downward pressure. Ethereum (ETH) and other leading alternative currencies, such as Cardano (ADA) and Polygon (MATIC), are discounted by more than 55% to date.

Meanwhile, major cryptocurrencies such as Coinbase and Gemini announced freezes and layoffs in early June. Coinbase shares are trading at about 15% below their 52-week highs.

Tyler and Cameron Winklevoss, CEO and president of Gemini, announced in a June blog post that the industry was entering a contraction they called “cryptographic winter.”

“This is where we are now, in the contraction phase that is being installed in a period of stasis, which our industry refers to as ‘cryptographic winter’.” return.

What is Crypto Winter?

The phrase “cryptographic winter” probably comes from the hit HBO series Game of Thrones. On the show, Stark House’s motto was “Winter Is Coming.” It was seen as a warning that a lasting conflict could descend on the land of the West at any moment.

Similarly, a prolonged period of problems may be settling in the crypto market. During this difficult time, you must remain vigilant and be prepared for chaos to sweep the market without much warning.

Defining the phrase even more literally, cryptographic winter is when prices contract and remain low for an extended period of time. Analysts believe that the wheels of the emerging crypto winter have been launched in early 2022.

“The cryptocurrency market was already feeling the effects of global events, especially the Russia-Ukraine conflict that has caused turmoil in global finance,” said Igor Zakharov, CEO of DBX Digital Ecosystem.

Zakharov points out that high inflation has driven rising US interest rates. UU., Which is the largest player in crypto. “By the time TerraUSD and Luna collapsed and launched a domino effect in the crypto world, the cryptographic winter had already begun,” he says.

Since November 2021, the crypto market has dropped 60%, drastically falling from $ 3 trillion to $ 1.2 trillion, at the time of writing.

The Advantages of Crypto Winter

This is not the first time a cryptocurrency has been installed on the market.

The last cryptocurrency winter lasted from January 2018 to December 2020. Probably the term was first used in 2018 when Bitcoin lost 50% of its market capitalization and other cryptocurrencies, such as Ethereum and Litecoin (LTC), fell sharply.

From that experience we know that the crypto winter is very similar to a conventional bear market and the results are not very different from the bear markets of other asset classes. Long-term cryptographic winters eliminate new businesses and provide an opportunity for leading companies to mature and demonstrate their products.

“We’ve seen a lot of new businesses across the industry over the past year, and many of them will fail,” says Jake Weiner, founder and CEO of Uncommon.

Weiner points out that as it becomes more difficult to compete for venture capital dollars, more cryptocurrency companies will cut budgets. Unfortunately, some will be forced to lay off staff.

“If the market stays in contraction long enough, not only will poor companies suffer, but some big ones will also suffer,” he says. “The good news for these companies is that, unlike past cryptographic winters, there is a lot of cryptography [venture capitalists] they have already accumulated war chests that they will continue to deploy ”.

Once the cryptographic winter thawed in late 2020, there was an incredible period of growth that lasted most of 2021.

Analysts say cryptocurrencies often start at the latest all-time high seen in the price of Bitcoin. BTC reached a 52-week high of $ 68,990 in November 2021 before it began to drop to its current price of about $ 25,000.

Crypto as a risk asset

Cryptocurrencies shot up in late 2020 to 2021 in part because the Fed Reserve was infusing unprecedented amounts of liquidity into financial markets.

This helped fuel the crypto market, triggering a major phase of hypergrowth, with thousands of new cryptographic projects added in 2021. That phase of massive growth continued until the fund began to fall late last year.

“When liquidity is taken out of the markets, the most speculative assets are the hardest hit, and I would say there is no more speculative asset class than cryptocurrencies,” says Robert Johnson, a professor of finance at Heider College of Business at the University of Creighton.

Will Crypto roar again?

When it comes to predicting the future of the crypto market, most experts say the “strongest crypts” will prevail.

“I don’t expect cryptocurrencies to roar again like in 2021 because the tailwind of Federal Reserve monetary policy has turned into a headwind for asset class,” Johnson says, adding that despite headwinds, we could still see cryptocurrency. market emerge from the ashes.

But some investors love the downturn, considering it a time to double the market in the long run.

When Bitcoin trades around $ 30,000, just under half of its 52-week high, investors see it as an opportunity to buy at a discount. They are betting on a cryptographic renaissance once the global political and economic crisis settles.

“This is my third cryptocurrency winter. There have been many ups and downs, but I see it as an opportunity,” Abigail Johnson, CEO of Fidelity Investments, told a 2022 Consensus hearing in Austin, Texas. “I was educated to be an opposing thinker, so I have this knee-jerk reaction: if you think the foundations of a long-term case are really strong, when everyone else is falling apart. [out]that ‘s the time to double down and work harder. “

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