what is crypto winter

What is Crypto Winter

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For decades, the crypto community has fought united against a common goal – Decentralized Banking, Despite their differences, Despite their respective ambition. They believe unity is all it going to take to reach the top.

However, there is always a time in a year or two that their faith is put to test by negative setbacks.

Yes, the Crypto community refer to this period as ‘ Crypto Winter’.

Undeniably, this period is investors ‘nightmare’ as the price of assets Sink.

The two of our favourites crypto,  Ethereum and Solana have both fallen by more than 30% over the previous week. Solana’s price edged close to 25 dollars — although still far above from all-time low. Ethereum’s price plunged below $1,100, its lowest in close to a year and more than 75% below its all-time high, which also occur in Nov. 2021.

In amidst of market uncertainty, big exchanges such as Coinbase and Gemini declared openly that they won’t longer be employing people till the market is back on track.

Forbes report confirmed that Coinbase shares have plunged 86% from their 52-week highs, and the organization has declared plans to lay off approximately 18% of its employees as the crypto market is facing a crisis.

According to the CEO and president of Binance, the second-largest exchange in the world believe the market downturn is far from over and we are in the season he tagged Crypto winter.

 

What exactly is Crypto winter?

The phrase crypto winter supposedly originated from the popular HBO Tv series- ‘Game of Thrones. while there is no precise definition of what it is

In the movie, winter is used to describe a sombre day or lasting conflict that has descended on the land of Westeros- a very very bad time.

Similar to the game of throne, crypto winter is when bad things are happening in the crypto space meaning the price of cryptocurrencies plunged and stay low for a long period.

Many factors can influence winter to occur in the crypto sector, we will be discussing that later in this article.

Like in the movie, in the crypto space, winter can last longer than two or three years.

 In crypto winter, the price of cryptocurrencies cools down (trade low), and when it’s over the price heats (trade high)

 

source Investopedia

{graphic representation of crypto winter}

looking at the above chart indicates that the price of Bitcoin is declining since October last year.

Previous Crypto winter

The first crypto winter recorded happened in the year 2014. when the first cryptocurrency- Bitcoin falls by 87% of its initial price after resounding gains in 2013.

In 2015, it regain its bullish momentum which led to breaking its 20,000 new times high in 2019.

However, that wasn’t the only winter recorded in the crypto space.

In 2017, Bitcoin’s price almost double its initial value, only to fall by 84% the following year. A lot of factors influenced the fall such as rumours that South Korea is considering banning crypto, Hacks on the Biggest Exchanges(OTC crypto market and Binance)

It’s not just Bitcoin that experience the winter, other cryptocurrencies that were present at that time

The key factor that influences the current crypto winter?

Since November last year, the crypto market has experienced a fall of approximately 60%—drastically plunging from $3 trillion to less than 900 Billion, as of this writing.

Crypto Analysts believe the high inflation rate, a consequence of the covid-19 outbreak and Russia -the Ukraine war contributed to the market crash. However, some other factors worsen the situation.

The Famous Luna-Terra Crash

 

The crypto crash started two weeks ago with TerraUSD, Luna’s native currency companion, losing its pegged to the US Dollar. Since both Luna and TerraUSD are algorithmically connected, Luna crashes following the debugging of TerraUSD.

Luna before the tragedy was estimated to be over 20 billion dollars, in a matter of days the market cap dropped from $20 billion to nothing. In an aim to recover, Terraform (the company behind Terra) initiate a strategy to sell all their Bitcoin to restore the $1 peg, which ultimately failed.

As a result,  over $40 billion was withdrawn from the crypto market and investment victims

 

Celcius Network Freezing It’s Crypto Transactions

The Celcius Network, a well-known decentralized finance platform stated that it is putting a hold on all of its crypto transactions, due to the extreme market condition. Following the announcement, there was a huge sell-off, with all crypto declining.

“We are taking this necessary action … to stabilize liquidity and operations while we take steps to preserve and protect assets.”

Celcius Network

 The inflation rate keeps climbing up

On Wednesday, the US federal reserve made an announcement has caused both the stock market and the crypto market to decline in value; investors lost faith and started selling their digital assets, leading to a crypto market crash.

The fed has concluded to increase interest rates to reduce inflation. Based on a Wall Street Journal story, the Fed will proceed with an aggressive strategy to raise debt prices, thereby restricting spending, and containing record-high inflation. And the fast rise in interest rates is commonly seen as an important sign of an impending recession.

What does crypto winter mean for an investor?

The crypto winter is not without its benefit. Forbes advisor, for example, indicates that a crypto winter behaves like a traditional bear market.

Some investors who love the pullback, see it as an opportunity to increase their investment in the market for the long term.

Currently, Ethereum is trading at around $1,100, slightly less than half its 11-month high, investors see it as a time to buy at a discount. They are believing in a crypto comeback after the global political and economic crisis end.

Crypto Winter: How long will it last?

There are no exact indicators that may be used to foretell how long crypto winter is going to last?

However, historical data indicate that the last crypto winter lasted almost a couple of years(2018-2020).

Although it’s reasonable to predict that the crypto winter will end at some point. Eventually when the global and economic chaos is over.

But when it comes to predicting crypto assets that will survive the winter, it’s mostly cryptos with strong use cases, an honest team of developers and d loyal community that prevails.

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