October 5, 2022
6 min read

What is "Crypto Winter" and what comes next?

This article will reveal: What is “crypto winter”? How long do crypto winters typically last? Lessons we can learn from previous crypto winters. Some interesting predictions from experts in the crypto space.

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Iveta Ruseva

Cryptocurrency prices have sunk more than 70% this year. This brings uncertainty and disappointment, doesn’t it? As a result, another "crypto winter” was declared. A lot of folks have placed their bets at the top of the bull market and are now suffering. This depressed market could last for years, or it might rebound sooner. It evokes mixed thoughts and feelings in different people - should I buy now when everything is “discounted”, or should I run, everything is nearing its end? How about you? 

Keep reading, we wrapped some cool information to help you make an informed decision. And remember: Diversification is probably THE key to a successful investment but we will talk more about it in another article.  

This article will reveal:

  • What is “crypto winter”?
  • How long do crypto winters typically last?
  • Lessons we can learn from previous crypto winters.
  • Some interesting predictions from experts in the crypto space.

Enjoy the read! 💸 

What is “Crypto Winter” exactly?

The “crypto winter” is equivalent to a stock bear market - prices can fall by up to 90% and remain low for months or years. Such a drop is unseen in traditional finance markets, prompting the creation of this new illustrative expression. 

Bloomberg coined this new term in December 2018 when it stated that Bitcoin had entered "crypto winter." It is now frequently used when there are significant price losses in the cryptocurrency market and no quick recovery is expected.  This means we are really into “crypto winter” right now. 

The term "crypto winter" is most likely derived from the hit HBO series "Game of Thrones." The House of Stark's motto in the show was "Winter Is Coming." It was interpreted as a warning that long-term conflict could erupt in Westeros at any time.

The last crypto winter was roughly between January 2018 and December 2020, when Bitcoin tumbled by approximately 80%. Cryptocurrencies have grown significantly since then and investment portfolios of all sizes, from individuals to S&P 500 companies hold some coins.

All eyes have been on Bitcoin (BTC) since the early May 2022 UST stablecoin meltdown. It's a key indicator for the whole market and the price of BTC has been struggling to stay above the psychological threshold of $19,000. Ethereum (ETH) and other leading altcoins, such as Cardano (ADA) and Polygon (MATIC), have been down 70-80% since January 2022. 

The whole crypto market may be in for an extended period of crisis. 

"The cryptocurrency market was already feeling the impact of global events, particularly the Russia-Ukraine conflict, which caused chaos in global finance," says Igor Zakharov, CEO of DBX Digital Ecosystem.

Now, you must remain aware and what happened in the past and what could come next.

Don’t worry! This is not the first “Crypto Winter”!

We have great news! This is not the market's first crypto winter and they usually clear out deceitful or weak projects and startups. "Over the last year, we saw a lot of new startups throughout the industry, and many of them failed," says Jake Weiner, founder, and CEO of Uncommon. 

We could definitely see how the promise of DeFi (Decentralized Finance) is unrealistic with its current set of mechanics - no liquidity buffers and promises for unsustainably high returns.

Weiner observes that as rivaling for venture capital becomes increasingly difficult, more crypto companies will reduce their budgets. Unfortunately, some workers will have to be laid off.

"If the market continues to shrink for an extended period, not only poor companies but also some great ones will suffer," he says. "The good news is that, unlike previous crypto winters, many experienced crypto capitalists have already earned huge cash reserves that they will continue to deploy."

The past 4 crypto winters

All 4 past crypto winters displayed similar behavior. What is possibly novel are the reasons. Historically, these downdrafts were primarily caused by events within the cryptocurrency space - hacks, lawsuits, threats of government bans, and other similar events.

Historically, crypto usually drops around 80% before recovery. When the “crypto winter” ended in late 2020, there was a period of incredible growth lasting most of 2021. 

Are there any past trends that could be applied to today's “crypto winter”? Let's look back in time:

  • 2012 - It's the first time Bitcoin has experienced immensely declining prices. In only six months, the price had dropped by approximately 40%. However, given the lack of competing blockchains, we cannot call it a crypto winter. Instead, it was a bear market.
  • 2013 - This was the first crypto winter, and it persisted from November 2013 to January 2015. Bitcoin slipped by 83% in 14 months.
  • 2018 - Bitcoin has fallen from $19,000 to under $7,000 in less than three weeks. Following a short rebound, Bitcoin collapsed to under $3,500 in the next 12 months - a decline of just over 80% from the current all-time high. The term "crypto winter" appeared.
  • 2020 - Following a three-month tripling in price, Bitcoin began an eight-month drop that would result in a 60% loss from high to low. This coincided with the coronavirus outbreak.
  • 2022 - Comparable to the crypto winter of 2018, Bitcoin's price was halved in just two months, followed by a quick rebound. Following this hopeful recovery, the price of Bitcoin has collapsed and is now roughly 70% below its all-time high.

Chart by TradingView.

Lessons we have to learn from previous “Crypto Winters” 

Lesson one: Crypto is trending similarly to stock markets

The crypto winter market shares some similarities with the traditional financial markets. When we look at the past three winter events (2013, 2018, and 2020), we can see that the average duration is 11.3 months. The bear equity market has historically lasted 9-10 months. The price drop in cryptocurrencies is, of course, far greater than the 37% average decline in stock markets, but this can be likened to the high volatility in crypto. 

Lesson two: Crypto winters are clearing out bad players

Crypto winters clear out bad companies and projects, this is good because that “ecosystem” allows strong companies to develop and increase their output more. 

Focusing on these better companies could be a smart plan, just like when stock markets enter bear market territory.

Lesson three: Invest for the long-run

Crypto assets are about digital transformation, opportunities created by blockchain technology, and any new developments that come with it. If you believe in the potential of cryptocurrencies, you can “weather” bear markets and crypto winters with ease! 

A good way to deal with the icy markets is to evaluate your portfolio and consider where you might be capable of making low-risk investments (quality tokens & projects) to take advantage of current low prices. Invest in small chunks every week, month, or year, and only risk the money you can afford to lose! And once again, diversification is probably THE key to a successful investment! 💪

5 crypto predictions to watch out for in 2022!

Will cryptocurrency continue to skyrocket, plummet, or tempt investors along an unpredictable journey in the near future? Will Bitcoin's volatility persist? Will Bitcoin’s correlation to stock markets weaken? Will regulations put the brakes or increase adoption? Which cryptocurrency will be the best investment this year? 

#1 Crypto Prediction: Will Bitcoin collapse or take an exciting climb?

Bitcoin is the world's closest equivalent to a global currency. It’s also the ultimate risk asset right now. Many experts believe Bitcoin has great long-term potential, but it will continue to experience difficulties during tightened central banks' monetary measures. BTC has taken a huge hit in recent months, and while a short-term rally may be in order, the ultimate low could be around $10,000. “The next bull market should accelerate Bitcoin wаy above $70,000 in valuation,” according to Victor Dergunov of The Financial Prophet.

#2 Crypto Prediction: A wider number of investors will adopt Bitcoin!

Ric Edelman, the founder of the Digital Assets Council of Financial Professionals, predicts that by the end of 2022, more than 500 million individuals globally will own Bitcoin. Flori Marquez, the co-founder of BlockFi and CoinTelegraph, agrees, crediting regulatory clarity and improved knowledge of the industry for driving greater adoption.

#3 Crypto Prediction: Most famous brands will slowly move into the Metaverse and will create mind-blown NFT products!

Many people believe that 2022 will be the year of the Metaverse, but this isn't a novel idea. Epic, Roblox, and now Meta have already invested substantially in collective virtual spaces where we can participate, collaborate, perform, and socialize. We expect to see more brands carve out specific marketing spending in 2022 to stimulate the growth of their brand image within this new space.

NFTs are a method of buying and selling digital assets that represent real-world or metaverse items, and their popularity is increasing steadily. Sotheby's, known for selling expensive items, already has a presence in the Metaverse, and luxury brands like Balenciaga sold their NFT collections in 33 seconds. NFTs will be a multi-billion dollar market by 2022, making them more accessible to almost any user on the planet.

#4 Crypto Prediction: Regulators are watching cryptocurrencies closely!

In 2022, cryptocurrency restrictions are expected to be a major issue. According to Vijay Ayyar, vice president of corporate development and global expansion at crypto exchange Luno, 2022 will be a big year in terms of regulation. According to Ayyar, some clarification on the legal "grey zone" of cryptocurrencies other than Bitcoin and Ethereum is expected. Stablecoins, the value of which is linked to the price of assets such as the US dollar, is another area of regulatory interest. Tether, the world's largest stablecoin, appears to be divided over whether it has sufficient USD reserves to justify being tied to the dollar.

#5 Crypto Prediction: The majority of meme coins will slip away!

Shiba Inu, a Dogecoin venture, increased 45,000,000% in 2021. Squid, a coin named after the television show "Squid Game," increased by more than 75,000% in less than a week before going missing.

The Final call is on you!

It’s not the first time the crypto market has experienced a “crypto winter”, and it probably won’t be the last. The previous “crypto winter” lasted from January 2018 to December 2020. And now we're back into the cold grasp of the 2022 “crypto winter”, which is absolutely expected because the crypto economy seems to function this way. Stay as protected as possible and always do extensive research when you decide to invest money in the market!

A quote to remember - Diversification is probably THE key to a successful investment! 🏆

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