In simpler terms, ‘Winter’ is a self-explanatory word that translates into cold weather, and when it merges with Crypto, It means Cold times for Cryptocurrencies. We can relate it to the “Game of Thrones” series.
What is Crypto Winter?
“Winter is Coming” is a phrase that fans of “Game of Thrones” will be familiar with. It means that bad things are coming in the form of a long-lasting war. Today, the phrase “crypto winter” is used to describe bad things that are already happening. This disruption is a sign of the economic turmoil that is affecting the market as a whole. It is also a stark reminder to regular people that Crypto can be valuable one day and worthless the next.
Time said that the two biggest cryptocurrencies, Bitcoin and Ethereum, have both dropped by more than 30% in the last week. Bitcoin’s price was getting close to $20,000. This was its lowest level since December 2020 and was 70 percent lower than its high point in November 2021.
Ethereum fell below $1,100, its lowest price in over a year and a half and 75% below its all-time high in November 2021.
Effects of crypto winter
Shares of Coinbase, which is the largest digital asset trading platform in the U.S., are down 86% from their 52-week highs. Bloomberg said that the company said this week that it will lay off 18% of its employees. Coinbase has been hiring many people in the past few years, resulting in layoffs. It hired about 1,200 people just this year, which is about the same number it plans to let go.
As more and more crypto companies show signs of failing, people talk more and more about how risky Crypto is. In an earnings report last month, Coinbase, one of the most popular cryptocurrency exchanges in the world, said that users could theoretically lose access to their Crypto if the company went bankrupt. In a later blog post, Coinbase tried to back away from the warning, saying that “customer funds could never be confused with corporate assets.”
Why is it risky?
When a cryptocurrency network goes down, investors can lose a lot of money because the price of a single coin can change by hundreds or even thousands of dollars in just a few hours. The bitcoin price is now around $20,000, which is a big drop from its high in November when it was almost $70,000.
Secureness is way less in crypto platforms. Even though the companies people use to buy and store Crypto are similar to banks in some ways, they don’t have the same protections for deposits as banks and investment accounts. If the companies that run these platforms went bankrupt, there’s no guarantee that people could get their Crypto back. This lack of protection shows that regulators are still trying to catch up with the cryptocurrency industry.
It also serves as a reminder that crypto platforms, even though some of them are publicly traded companies and might seem safe, are part of an industry with almost no rules and few safety nets. Even UST, which is supposed to be a “stablecoin” that follows the value of the U.S. dollar, crashed last month, wiping out the equivalent of tens of billions of dollars.
In the crypto industry, things have only gotten worse recently. After the UST crashed, the Securities and Exchange Commission is reportedly investigating whether Terraform Labs, the company behind the coin, broke securities law. And last week, Celsius Network, a crypto platform that isn’t a bank but claims to offer high-yield cryptocurrency lending, made it impossible for its users to withdraw their money. This decision is now being looked into by securities regulators in several states.
What’s driving the Crypto Winter?
In this case, these bad things are driving down the prices of cryptocurrencies. Igor Zakharov, CEO of DBX Digital Ecosystem, told Forbes that the Russia-Ukraine conflict, which caused financial chaos around the world, was already affecting the cryptocurrency market. “By the time TerraUSD and Luna failed and set off a domino effect in the crypto world, it was already crypto winter.”
All of these things have led to the current crypto winter, which is a term for a long-lasting drop in the market. Since November 2021, the value of all cryptocurrencies has dropped by about 60%. Most crypto winters start with a big sell-off from Bitcoin’s high point.
Like stocks, which entered a bear market this week, Crypto has been hit by high inflation and a growing sense of economic uncertainty due to the war in Ukraine and ongoing problems with the global supply chain.
This is not the first time that the cryptocurrency market has gone down for a long time. The last crypto winter happened from January 2018 to December 2020. That was also the first time the term “crypto winter” was used. The good news is that after that drop, cryptocurrencies went on a long, steep rise that peaked in November 2021.
Will it happen the same way this time? Experts say not to bet on it.
“I don’t think crypto will come back with a bang as it did in 2021,” Robert Johnson, a professor of finance at Creighton University’s Heider College of Business, told Forbes. “The Federal Reserve’s monetary policy, which used to help the asset class, is now hurting it.”
Efforts to regulate the crypto industry are getting stronger, and they probably won’t stop any time soon. In the meantime, the winter in the cryptocurrency market is making more people worry about their money. That may not be good for people who invest in cryptocurrencies.