What’s a Crypto Winter and are they Actually Good?
While we’re all excited for crypto’s next big bull run, Eric Ma, CEO of TIDEX, pushes back against the misconception that crypto winter’s are a singularly bad thing.
The last major crypto plunge happened in 2018, with many claiming it was the end — one of many supposed crypto deaths — and yet, here we are.
If this isn’t enough proof to convince you that there’s plenty of reasons to be optimistic about the current bear market — and the fact that it not only doesn’t spell doom for crypto, but it will in fact eventually end — then it’s a good time to reflect and learn from the past.
Blockchain technology continues to be built towards transforming the world and is ever changing the lens with how we view institutional societal and economic structures.
While speculation, fear, and doubt still seeps in the air. We’ve summarised for you all you need to know about crypto winters, what to expect from them, and why they’re actually good.
What’s a crypto winter, and how does it happen?
“Crypto winters” are when token prices decline, and remain low for an extended period of time. Crypto winters can be anxiety inducing — much like actual snowstorms, being prepared for the worst is required to stay strong.
A lot of factors can influence when crypto winters happen. We can only make guesses as to what creates these plunges.
There’s only so much we can pinpoint to what set 2022’s crypto winter in motion.
The escalation of the Ukrainian-Russian conflict has resulted in not only declines in the fiat financial industry, but has spread ripples into crypto. Inflation is also running rampant throughout global markets, with gas prices continuing to rise, and other commodity prices following suit.
Public opinion on social media also plays a major role. As a result of these factors and more snowballing. The crypto market has dropped since November 2021: a 60% decrease, from $3 trillion to $1.54 trillion at the time of writing.
However, crypto markets have grown significantly in user base and resilience, and already have experience with many winters.
What should I expect from a crypto winter?
Four years ago, Bitcoin lost more than half of its market capitalisation. As a result, token prices as a whole dropped quickly. Resulting in the crypto winter of January 2018 to December 2020.
It can be generalised that crypto winters serve as a kind of Darwinian “survival of the fittest” sort of situation, where younger crypto projects and startups tend to drop. Competing for investors can be difficult, due to the unpredictability of the situation.
However, there’s already plenty of future-proofing done by not only projects but also investors in order to make these projects sustainable. This crypto winter is different, as venture capitalists, crypto markets, and increased regulation now know how to better cope with the situation.
What’s so special about this crypto winter?
In contrast to the crypto winter of 2018–2020, there has been an increase in how people use crypto and how they operate businesses. In addition, the view that crypto can be seen as a risk asset has been introduced. Liquidity fills the financial market, and creates more incentive to grow the industry.
Crypto saw massive growth from late 2020 to 2021. Thousands of new crypto projects have been launched in the year 2021 alone, gaining more community members to help sustain the industry. Thanks to the NFT and dApp boom in 2021, we now are lucky enough to have even more resources to help the crypto market and community spring back.
This time, crypto is a little bit more mainstream — with NFTs, social tokens, and the metaverse, established companies that have pledged to invest in crypto initiatives have already invested so much in the industry.
With tech giants like Apple, Microsoft, and Meta already influencing public opinion. There’s an added bonus where more people are feeling adventurous to try out DeFi, therefore growing their Web3 user base. As corporate and financial institutions start to embrace crypto. It’s within their interest to help with sustaining its infrastructure and industry.
What’s there to win from any crypto winter?
Think of crypto winters as a prolonged state of bear markets. In the long term, crypto winters give opportunities to developers, artists, and investors to continue in building their products, projects, and community outreach.
On the backend, crypto winters are an opportunity to rethink Web3 business models in order to adapt to the times. No one can really anticipate what would be the next trend, or the cause of the next crash, but it’s a great chance to build projects and products that respond to customer needs quickly, and effectively.
In these times, blockchain innovations also continue to advance. Cryptographic technology has improved, boasting more features than ever before. The introduction of layer 2 mechanisms since 2021 has allowed for the accommodation for a larger amount of transactions on the Ethereum blockchain network. As a result, layer 2 also brought in more tools to improve quality of life in DeFi.
Investors are also presented with opportunities to step into crypto during crypto winters. As prices of assets have experienced significant drops, investors who are looking to diversify their portfolios can purchase tokens like Bitcoin and Ethereum at a discounted price. As blockchain development shows no signs of stagnation with projects eager to stay alive. More investors are putting their trust into hoping that crypto can see spring once the markets feel more stable.
TIDEX CEO, Eric Ma, Comments: “Like with everything in life, there are ups and downs. Crypto markets are no different. Speculators tend to go into hibernation during crypto winters while the diamond-handed believers see it as an opportunity to build and learn more about continuous innovations. Crypto winters aren’t bad. They’re good for the long term growth of the industry. Good things take time and we’re still so early.”
