Amid the fall of the cryptocurrency market, including bitcoin, industry experts are increasingly talking about the onset of cryptowinter. A number of factors are leading to stagnation, including threats of a Russian attack on Ukraine, a coronavirus pandemic and regulatory attention to the crypto sector.
This isn’t the first time we’ve had a winter
Cryptowinter is a sharp downturn in the digital asset market followed by stagnation and no recovery for an extended period. This has only happened once in the history of crypto.
At the end of 2017, bitcoin collapsed from $20,000 by more than 80% and held at $3,100 until December 2018. The asset was able to recover only with reaching its new high at the end of 2020.
During this period there was a decline of ICO (Initial Coin Offering), and many big banks postponed their plans to accept the cryptocurrency. The principle of cyclicality has traders worried that this could happen again.
“When the question arises as to how this can be characterized, the closest analogy is 2018, which is associated with cryptowinter. It’s probably going to be a pretty difficult and long period, so the analogy with cryptowinter is pretty good,” said James Malcolm, head of currency research at UBS Financial Research.
What’s the groundswell of fears?
The first sign of a cryptowinter is a bear market. This means that the exchange rate of major coins falls by at least 20% over an extended period (usually at least two months).
The mastodon of the market — bitcoin, which accounts for 40% of the market capitalization of the entire sector — reached its peak of $69,000 on November 10, 2021. According to the cryptocurrency exchange, its value has been gradually declining since then, and by January 28 it reached $36,600, down 47%.
This trend turned out to be global — the growth of uncertainty among investors provoked the reduction of capitalization of the entire cryptocurrency market as a whole. In just 2.5 months, the figure has almost halved — from a record $3 trillion in November to $1.65 trillion in January.
In this regard, former Meta (formerly Facebook) crypto head David Marcus believes that cryptowinter has already arrived. “It’s during cryptowinter that the best entrepreneurs build the best companies. It’s time to focus on solving real problems again, not pumping tokens,” he wrote on Twitter.
Overall, a combination of factors are influencing the stagnant market. These include economic (e.g., the international trend toward regulating crypto-assets and, in particular, the tightening of the US Securities and Exchange Commission), health (the COVID pandemic) and geopolitical (the aggravation between Ukraine and Russia) components.
Is it all that bad?
Strategists at Invesco, one of the world’s largest investment firms, admit that in 2022 the bitcoin exchange rate could fall below $30,000. This has not yet been predetermined.
“Last year, we said bitcoin would fall below $10,000. Instead, it peaked at $68,000,” states Invesco’s global head of asset allocation Paul Jackson.
But while some traders dread the onset of cryptowinter, others see opportunities. Many of them are following the “buy cheap, sell expensive” strategy, i.e., adding to their crypto-assets balance after the fall in exchange rates in order to sell them when markets recover. One of them is Robert Kiyosaki, author of the best-selling book “Rich Dad, Poor Dad.”
“You make a profit when you buy, not sell. The great news is that the price of bitcoin is collapsing. I was buying it at $6k and $9k and will buy more when it drops to $20k. Time to get rich,” the investor wrote on his Twitter.
Director of the financial advisory company ADVFN Clem Chambers “announced” the onset of cryptowinter back in June 2021. But after that, bitcoin set a new record and market capitalization reached $3 trillion.