Crypto Winter

In spite of the fact that it is spring outside, we are going to talk about such a phenomenon as “Crypto Winter”. The crypto community awaits another prolonged period of cryptocurrency falling prices. Is the new «cold season» coming or is it just a mass panic over the world cataclysms? Let’s clear things up.

Charles Hoskinson about crypto winter

On May 11, 2022, Charles Hoskinson, the Cardano founder, has twitted a short 18-minute video called «A Few Musings» on his Twitter account. There, Charles touched upon some topics concerning what is happening in the crypto market. He told his followers about the general market breakdown and said that people don’t consider the long-term consequences of what they’re doing. That, as follows, could be the main reason for the possible crypto winter start.

Charles Hoskinson claimed that there are two types of people — those who say they’ve already seen everything and are sure that the market will get stable again, and those who panic "This is the end of crypto! The dream is gone!".

He also mentioned that the main point of cryptocurrencies always was about restoring some trust, credibility, and stability to the world money system. However, he does not see any triggers that could rebound the market soon.

On May 12, 2022, Hoskinson has welcomed everyone to the crypto winter:

What is crypto winter?

The term “Crypto Winter” refers to a long bearish period that causes panic on the market. One of the signs that a bearish trend is not just one of the regular setbacks is that analysts cannot see the end of the trend. This situation leads to a lack of enthusiasm among investors and thus initiates the withdrawal of capital. These things combined usually push the market into a longer downgoing trend. The most unpleasant result of this downgoing trend is redundancies across the industry, which only creates more panic and pushes the industry further down.

Crypto winter 2017 - 2019

So far the crypto market experienced the one and only crypto winter, which started in 2017 and continued until 2019. Back then the crisis started with the Bitcoin price falling by 80%, from $20,000 to $3,100. Ethereum went from $1,400 to $100. Let’s take a look at what happened then.

2017 was a time of unbelievable crypto boom. In December, right after reaching a new all-time high, the Bitcoin price started to fall. Within several days it rallied down by 45%.

In January 2018 South Korea announced that the country is preparing to ban crypto trading. That pushed the Bitcoin price down by 12%. In addition, the same month Japan’s largest OTC market, Coincheck, was hacked. The amount of NEM coins stolen equals $530 million. In March irregular trades were executed on Binance. Later this month major social media blocked advertising campaigns for crypto-related products.

By November 2018 market capitalization of Bitcoin fell below $100 billion, and the price reached $5,500.

What are the drivers of crypto winter?

There are several things that can influence the crypto winter. For example, one of the most significant factors is crypto regulations. Because of some legal matters investors may be forced to leave the industry. Undoubtedly, this leads to the deterioration of the situation in the crypto market.

Another important factor is people’s enthusiasm. If enthusiasm is the only factor that drives investors, they are likely to leave the market with the first signs of instability.

Can we predict crypto winter?

It is nearly impossible to predict such long trends. This is the reason why from time to time some signs of panic can be seen on the market. It became especially obvious after another crypto boom that took place in 2021. Some investors remembered that the crypto winter of 2017 started with a crypto boom and actually defined it as a sign of a new cycle. There is an opinion that the crypto market has a cycle type of development. Even if it is true, we cannot rely on counting years in these cycles only.

Unlike the traditional finance market, the crypto market is rather young. People are exploring it very fast, and one might say that newcomers are more educated about the subject, thus they do not usually act out of pure enthusiasm. This makes some experts believe that even though crypto winters may come in cycles, each cycle may be longer than the previous one.

Moreover, the crypto industry itself has developed enormously since the last crypto winter. It now provides more instruments to those who are willing to participate. Crypto regulations that are being adopted are also more or less clear.

Nonetheless, Vitalik Buterin predicted the next crypto winter back in February 2022. He said that a bear market would not scare people away, and vice versa a lot of people would be happy to see it happening. Even though it may seem controversial, it should be kept in mind that bull markets attract a lot of unnecessary attention to cryptocurrencies and encourage speculations. According to Vitalik Buterin’s opinion, crypto winters help to acknowledge what projects are going to stay for the long term. Nevertheless, at that moment he was not sure if the crypto winter had started already or if we could only witness higher volatility in the market.