Crypto Winter. Trick or Treat?Dec 7, 2022
The winter season doesn't seem flattering: it's giving cold, dark days, ugly landscapes, dangerous driving, heating costs... When we talk about crypto winter, many of us have similar associations. But is it that bad? Spoiler: it is cruel, but there are bright sights to it. Let's analyze what crypto winter is, and why it's actually not that eerie.
What is Crypto Winter?
Crypto Winter is the characteristic of a crypto market experiencing lengthy periods of the bear trend. Once the bearish market lasts longer than three months and there are no signs of improvement, they say crypto winter is coming.
The terms Bull & Bear market are traditional to equity trading and are used to describe assets' performance. Since crypto prices often mimic stock behavior, the terms also apply to the cryptocurrency market.
|Image Source: Ig.com
During the bull crypto market, the demand for cryptocurrencies outruns supply, their prices skyrocket, investors are excited, and trading volumes go up. This one is a fairly favorable market condition fueled by hype, FOMO, and resulting in massive returns.
Bear market comes with continuous price downside, low investor activity, and decreasing market confidence. During that period, Crypto Fear & Greed Index points to “extreme fear” or slightly above.
Crypto Winter 2022
Bitcoin is down for almost a year, now sitting at a 70% lower price than its all-time high reached in November last year. Considering that the Bitcoin market cap makes up almost half of the overall cryptocurrencies' market capitalization, other assets tend to follow Bitcoin's pattern. But what causes a crypto winter like this?
Why does crypto winter happen?
- Early and experimental sector.
In 2022, the digital currency market is still early on compared to the stock market that exists for almost three centuries. So fewer people fully understand ins and outs and make rational decisions.
- Concerning macroeconomic landscape.
The world economy is now confronting high inflation rates and high sovereign debts. These factors and the unsettling geopolitical situations urge investors to stay away from risky investments like cryptocurrency and sell off their crypto holdings.
As investors start rapidly getting rid of digital assets out of fear that prices keep descending, assets, in fact, lose even more value.
- Lacking regulation.
Governments defining the legal status of cryptocurrencies would increase trust in decentralized finance, attract more people, and eventually drive prices higher.
- Sentiments & psychology.
Community concerns about the future, fed by fears that crypto will never recover, sink the Fear&Greed index. Above that, the press throwing anti-crypto claims spoils the reputation of cryptocurrencies in the eyes of the public, be these authors driven by ignorance of how the technology works or generalization from isolated cases.
A very recent example of news moving the markets is Elon Musk's Twitter acquisition that catapulted the DOGE price up by 100% in a week.
- Failing projects.
Biggest crypto projects do fail, but not because they intend to scam users. Going back to the first point, cryptocurrency is a new phenomenon, so industry leaders are doomed to learn from their mistakes. Terra network crash in May and Celsius Network bankruptcy in September ‒ the two largest players on the market ‒ spread more FUD (Fear, Uncertainty & Doubt) in the community and shook the DeFi economy yet more this year.
The Advantages of Crypto Winter
Crypto winter doesn't mean projects freeze, stop building, and investors take vacations. There are some points that make crypto winters not that spooky.
Only strongest survive. Scams get wiped out during the bear market due to lacking fundamentals, while legit projects shift priority to product development and get more powerful. Curiously enough, Solana, Uniswap, Cosmos, and Ethereum were all launched during bear markets and are still there and growing.
Markets move in cycles. After a bearish downtrend, there is always another bull run followed, sadly, by another bear market. Bitcoin outlived four bear cycles, but it always grows back. In fact, solid currencies tend to reach their previous all-time highs (ATH) and grow in value more when a bull rally comes.
|Image Source: CoinMarketCap
- A new window of opportunity. A bear market is a suitable time to accumulate assets at prices lower than their fair value. Some of the most successful investors of the 2017 bull market were those who lived through the 2014-2016 crypto winter.
Tips for Surviving Crypto Winter
Be patient and hold on to your investments to regain losses when the market recovers. Other coins may be performing better at a given time, but if you did your research and believe in the assets you purchased, it may be worth waiting.
No panic buying/selling.
Don't compare your investments to other people's. Make your own rational choices, and do not rush to buy hyped-up tokens.
Stick to your initial plan.
Crypto winter is painful, but for investors with a long-term mentality, it does not seem to be the end of the world, as they are well aware the market is going back up sooner or later.
Remember the risks.
The Crypto market is highly volatile and particularly vulnerable. Crypto winter or not, it is constantly fluctuating. Mortgaging your house to invest it all in Bitcoin is not something you want to do. A rational attitude and a pinch of salt towards any asset is your friend.
Do your homework.
Consider investing in cryptocurrency upon your own thorough research. While the market is calm, stay involved, learn, and analyze to be all set for the new profitable season.
Where to Purchase Crypto During Crypto Winters?
Thinking to accumulate Bitcoin or any other currency while there is a good chance? Many trusted exchanges offer purchasing crypto. Still, the most convenient way is to buy it right from your wallet without exposing your private data to exchange platforms that require verification.
Digital wallets today not only store your assets but offer far more services. For instance, with Arctic Wallet, you can buy Bitcoin, Ethereum, Dogecoin, and more than 170 cryptocurrencies using Visa and Mastercard or swap currencies without leaving your wallet app. No additional friction between wallets and exchange accounts.
|Image Source: Arctic Wallet App
Halloween Nightmare or Natural Course of Things?
Crypto winter is truly a harsh time for any crypto investor, but unlike yearly Halloween, nobody can for sure predict when the next bear market strikes. So far, it seems to be an inevitable phase of the digital market. So, as mean it may seem, less dramatization and rational behavior will help you make it through crypto winters.
Frequently Asked Questions
When was the last crypto winter?
The previous crypto winter happened in 2018, triggered by the so-called ICO Bubble, and lasted for less than two years.
How current crypto winter is different from the previous one?
This crypto winter is harshed by unprecedented political and economic instability in the world as well as by crashes Terra and Celsius Network suffered.
When will crypto winter end?
The average crypto winter duration is 2 to 3 years. The 2015 depression period ended in just one year, though. It's hard to say exactly when the market will recover this time.
Will crypto recover?
It's almost impossible to predict when, but ultimately the crypto market will rally back up as it always does after periods like this.