In past few months, we all have listening much about Crypto Winter. Much talk about this term has created a genuine reason to talk about it.
The concept by the name “crypto winter” is owing to the manner in which cryptocurrency prices have been crashing off late this year. This can primarily be attributed to the fact that the digital currency market has been proving to be vulnerable to the global economy’s wider problems. The occurrence of this has led the big names in the industry to coin this arrival with the term “crypto winter”.
Interestingly, the phrase “crypto winter” was most likely coined from the famous HBO series, “Game of Thrones.” The phrase was picked from the famous motto of the series, “Winter is Coming” which implies a warning in common parlance, it refers to when the prices have dropped a long way and then have maintained that status quo for a couple of weeks or even months.
A Brief Update on Crypto Winter
Dating back to 2017 to late December 2020, crypto prices have had a steep fall from the previous peak prices. To the contrary, in December 2020, these prices had seemed to explode to a record high in what is called a significant crypto bull market. Of course, given the elusiveness of crypto markets, it is quite unpredictable to hit the nail on the coffin when it comes to future price changes, however, it is certainly wise for those who invest in crypto to be aware that crypto winter is a possibility and it does happen.
What are the Concerns Regarding Crypto Winter?
Based on the recent emergence of cryptocurrency which does not date back to more than a decade, it is hard to say how long an existent crypto period would last, for instance, it is quite possible that a crypto winter could go on for ad infinitum. At the least, investors must beware that a long-term crypto winter could result in lower and lower asset values as they approach zero.
For instance, in India dealing with cryptocurrency is not illegal per say but irregular and making an inference from this, it can be said that overall cryptocurrency exchanges have minimal financial regulation interference. This gives way to a lot of scams and frauds that the concerned investors should be aware of when it comes to holding crypto over a long term. It is during this period that one must remain attentive and prepared for facing any chaos that the market could possibly create without much warning.
The Effect of Crypto Winter on the Global Economy
Clearly, the cryptocurrency market is under humongous pressure when it witnessed a massive drop to below $1 trillion from a stable $3 trillion in November, 2021. What is alarming is that despite the 2018 crypto crisis wherein the Bitcoin value when dropped by 80% was revived and reached soaring heights, it is quite the contrary right now where the market credibility of cryptocurrencies is in jeopardy and is showing no signs of revival.
The largest digital currency which is the Bitcoin fell to $21,105 which is its lowest level since December 2020 and subsequently several other cryptocurrencies followed the same path. This pattern has resulted in eliminating at least 1,100 positions or 18% of employees as stated by Coinbase, a crypto company. Organizations such as crypto.com and BlockFi also apparently have eliminated hundreds of positions.
This crypto winter of 2022 is not just about crypto alone, the entire global economy is at loss. There are a lot of factors to consider at this point like rising inflation, interest rates , supply chain shortages, a struggling labor market and a global food crisis.
We see similar instances in stocks wherein Netflix lost 35% in a single day, Facebook lost 26% and 25% for Target. Indian crypto investors have on the other hand had to deal with regulatory ambiguity and high tax rates on crypto gains and the rising volatility in digital assets which have not proven to be very conducive to their investments. With the ongoing war between Russia and Ukraine, crypto investors fear that if the war intensifies, there could be more selling.
Conclusion
As per expert reports, with cryptocurrencies being increasingly regarded as a hedge to fiat currencies, one would be curious to predict what the future holds with how Russia and Ukraine both use digital assets during the military operation. Both these countries play a big role in the global crypto market, especially in mining.
Unfortunately, before the crypto winter many startups had initially resorted to coin offerings in order to raise capital by issuing their own tokens to the respective investors. As a result, they suffered when the coin prices came crashing down as they kept most of their value in the very same pool of assets.
The present verdict for what could stand next for crypto states that as the crypto market was built on the foundations of enthusiasm and optimism, all of it is gradually evaporating amidst bigger economic problems. Given the slump which is expected in the economy, it may take a while before we witness another crypto summer post this crypto winter.
