What Is a Crypto Winter?
The term “crypto winter” generally refers to a period in which the cryptocurrency market performs poorly, significantly influencing investor mentality. The term is comparable to a bear market in the stock market. There have been several crypto winters in the past, one being the crash that the market witnessed in early 2018. In such a situation, the majority of cryptocurrencies are affected. There is a possibility for exceptions in a bear market where some coins show exemplary performance. Due to the extreme price volatility, it is impossible to accurately predict when a crypto winter will begin and end.
What Triggers a Crypto Winter?
A crypto winter could be triggered by many factors, including regulatory change, lack of demand, increased difficulty and accumulation of unsustainable highs. However, the top three occurrences that lead to a crypto winter are market crashes, exchange hacks/breakdowns and overregulation by governments.
Market crashes happen sporadically and have a tremendous impact on the price of coins. The ideal way to avoid countering a market crash is to identify its root causes to prevent future surprises.
Exchange hacks and government policy changes are common, impacting the stability of centralized cryptocurrency exchanges (CEX), decentralized exchanges (DEX) and coin prices. Most hacks usually result in the loss of millions of dollars and, sometimes, even bankruptcy. On the contrary, policy changes affect not just exchanges, but even users. Some of the most common policy changes are bans on cryptocurrency trading or freezes on related payments.
When Does Crypto Winter Start?
The previous crypto winter began in January 2018 and lasted until December 2020. Looking at the past for direction, we can see that a crypto winter behaves like a traditional bear market. In the long term, weak startups are weeded out, allowing stronger companies to grow and prove the strengths of their products.
A crypto winter usually starts when there is a steep sell-off from the previous all-time high of Bitcoin. The last ATH of BTC was in November 2021 when the price hit $68,000. After that, prices started to trend downwards. In mid-June 2022, the price dipped by nearly 70%.
Crypto Winter vs Bear Market
A bear market is said to take place when the price of financial assets decreases continually. Most financial experts agree that a 20% or more price drop is considered “bearish.”
A bear market is also often characterized by irrationality and pessimism, leading to prices falling even further. Bear markets can continue for a few weeks or several months. In traditional financial markets, bear markets have been known to last for as long as 20 years (known as a secular bear market).
Within the crypto world, a crypto winter refers to a season when financial assets are frozen or do not appreciate. During this time, crypto-assets do not have far-reaching appeal and are not in demand or seen as valuable assets. Crypto winters are usually witnessed between two bull cycles when the initial wide-eyed excitement regarding the crypto markets dies down.
