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Crypto winter is a term used in the cryptocurrency communities to refer to the long downturn in crypto prices and stocks.
Origin and inspiration
Many believe that the term is likely to be inspired by the hit television series, Games of Thrones, where a saying of the House of Stark was ‘Winter is Coming’ which referred to a warning for an imminent danger.
However, the term is actually derived from the phrase “Nuclear Winter”. It refers to the aftermath of a nuclear war that razes everything to the ground. You may have read headlines like “Crypto winter has just gone nuclear” used by reporters to explain the intensity of the sheer destruction in the crypto market.
The term has also been used in centralized finance systems. For example, back in 2016 with the UK and Brexit fiasco, analysts and economists projected that the uncertainty may lead to an “economic nuclear winter” for banks in the UK.
In similar vein, the term refers to the trouble and downfall of the crypto market. Such market conditions represent massive losses and subsequent chaos.
How is crypto winter similar to a bear market?
The term shares a lot of similarities to the traditional bear market. The results and loss of assets are also similar. A bear market sees an overall downward trend in the market which becomes more apparent and non-negligible when investors sell their assets. There is a significant decrease in the value and the prices over time.
Similarly, in cryptocurrencies, the overall value and prices go down with the investors and coin holders selling off their assets, deepening the price decrease. Both markets can be volatile and may require attention to detail for strategic decision-making in order to sail through price fluctuations.
The rise and fall of Bitcoin billionaires
The first crypto winter is said to have taken place in the year 2018 and it lasted till 2020. The term is also said to have been first used in the year 2018 when Bitcoin struggled by the loss of more than half of its market cap. This also had a multiplier affect on other currencies such as Ethereum and Litecoin.
Crypto winter yet again knocked at the door of mighty Bitcoin in the year 2021. The market in 2021 was very volatile as Bitcoin had dropped by 50% between April and July and the community wondered whether Bitcoin will recover. Following the downslide, not only did Bitcoin recover, it became bullish and the Bitcoin price went up to a whopping $70,000 only for the current crash to begin.
The current crypto winter started in the first half of 2022. According to experts and investors, it may not be able to recover until 2026.
As [crypto] has gotten larger, there’s been more sensitivity to the intersection with the traditional finance market and fundamentals.
Joel Kruger, a market strategist at LMAX Group, on the market condition.
How long does a crypto winter last?
The duration can vary. It is also dependent on multiple factors such as the current market conditions, regulatory developments, the state of the global economy and the magnitude of market corrections. The first winter is considered to have taken place in 2018 and it lasted for a good 23 months.
While there is no hard and fast rule, like almost everything in the world, a crypto winter can be predicted with some level of accuracy.
Overarching effects of crypto winter
During crypto winter, not only do the prices of cryptocurrencies go down but crypto companies and investors face losses and difficulties. If the winter lasts too long, not only does it wipe out small companies but the big guns also suffer causing them to conduct massive layoffs.
Several companies like Opensea and DapperLabs downsized considerably significant numbers of employees all through out 2022. Thus, the loss of job is a major downside of crypto winter.
Other than the loss of jobs, there are ways through which crypto winter negatively impacts the market and the people associated with it.
- Securing funding can be a big hassle for pre-seed and new startups because there is a behavioral change in the market and investors are more risk-averse during the crypto winter.
- Generally there are existing apprehensions about crypto in the minds of people. With crypto winter, these apprehensions can turn into beliefs, affecting the user-friendliness of people towards and the acceptance for crypto in a negative way.
Positives of crypto winter
But, there is a tiny positive of crypto winter. It gives young startups and companies a chance and opportunity to work on their products to make them even more mature and provide better solutions. We have gathered a few more for you learn from.
1. Informed regulations
Crypto winter allows governments and organizations to make more informed regulations because now they truly understand where more risks lie and what they can do to avoid them. These regulatory measures often are more centered towards making the market more investor and business friendly. With this, the investors will not instantly withdraw in the face of a winter.
2. Consolidation
Many small and medium size businesses may face challenges. The big businesses, however, manage to bear the collateral damage. But a crypto winter can encourage big crypto businesses to consolidate the affected small businesses and safe them from shutting down.
3. Innovate to persist
During the down market, businesses and companies are compelled to think out of the box and bring something innovative to the table that has the potential to help them sustain the difficult time and market uncertainty.
Conclusion
Crypto winter refers to a period of decline in the value of cryptocurrencies. While it can lead to job losses and economic challenges for companies and projects in the cryptocurrency industry, it can also bring about some positive outcomes such as consolidation, innovation, regulatory clarity, etc.