The history of Bitcoin is a relatively brief one, but quite exciting and volatile. That can also be said for all the cryptocurrencies in the “cryptoverse.” This history has lots of ups and lows, booms and crashes, and (un)predictable “weather patterns.”
So, how, and more importantly, why did we get here, in the middle of a summer predicting and analyzing - the crypto winter?
Crypto winter is a prolonged period characterized by a sustained and general drop in the price of cryptocurrencies which also hinders the enthusiasm for the industry.
Isn’t it a bit too early to talk about the crypto winter? “Sun is shining, the weather is sweet.” (Bob Marley)
Are we sure that we’re using the right terminology?
After all, we already had one crypto winter, but we’re calling it - the Great Crypto Crash when “the price of bitcoin fell by about 65% from 6 January to 6 February 2018. Subsequently, nearly all other cryptocurrencies followed bitcoin's crash. By September 2018, cryptocurrencies collapsed 80% from their peak in January 2018…”
So, what’s the most appropriate combination of words or the most convenient term to use to describe what’s happening right now:
“Bitcoin just finished its worst month on record, losing more than 38% of its value in June, as of Thursday afternoon. Ether, the world’s second-biggest cryptocurrency by market capitalization, ended the same period down by about 47%.”
To say or think that this is crypto-déjà-vu doesn’t do us justice because:
“In May, the popular U.S. dollar-pegged stablecoin project UST — and its sister token luna — imploded, tallying a $60 billion collective loss. Then in early June, lending firm Celsius, which promised users high yields for their digital currency deposits, paused withdrawals for customers, citing “extreme market conditions.”
Different times. Different circumstances. And, above all, different markets:
Why is this important to emphasize? Here’s a useful investing 101 definition:
“Market cap—or market capitalization—refers to the total value of all a company's shares of stock. It is calculated by multiplying the price of a stock by its total number of outstanding shares. For example, a company with 20 million shares selling at $50 a share would have a market cap of $1 billion.”
It’s obviously unfair to compare the size and capitalization of the cryptocurrency market in the winter of 2018 against the summer of 2022. But still, it has to be done because the stakes are jaw-dropping higher, to put it mildly.
“Market cap allows investors to size up a company based on how valuable the public perceives it to be. The higher the value, the "bigger" the company. The size and value of a company can inform the level of risk you might expect when investing in its stock, as well as how much your investment might return over time.”
The crypto winter of 2018 was an extended period of low prices that lasted almost 18 months. Besides the flat figures, this cycle was characterized by little to no levels of interest and engagement. Investor interest returned in July 2019…
Imagine that! Eighteen months of “crypto hibernation.” It’s no wonder all of our SF movie heroes need some time to pull themselves together after spending months in cryo hibernation. Talking about the time, here’s something interesting. Why do we keep using months when analyzing the duration of the crypto winter of 2018? Isn’t it simpler to just tell it as it really is - a year and a half?
Ah, it has to do something with being gentle and respectable when it comes to the “nuances” that cost or hurt a lot. For example, scientists like to talk about the “mini” or little ice ages that last “only” a few centuries, give it or take. It sounds more comforting compared with the “real” ice age that could “stretch” over a period of tens, or even hundreds of thousands of years, doesn’t it?
The beginning of wisdom is the ability to call things by their right names.
With all due respect to these words of ancient wisdom, it was relatively easy for Confucius to come up with this timeless quote. Not only didn’t he have to worry about crypto, but also he lived in the Spring and Autumn period of Chinese history. No winter in sight. Good for him. Not so good for the modern time financial travelers on the road of wisdom, such as this gentleman, who called the crypto things of 2018 by their right names, and duration:
“There’s this question of how do we characterize that and the nearest analogy is probably 2018, which is this idea of a crypto winter,” James Malcolm, head of foreign exchange research at UBS, said by phone. “It looks likely to be a fairly difficult and potentially prolonged period and therefore, the crypto winter analogy is quite good. Remember, the crypto winter in 2018 wasn’t just over the Northern Hemisphere winter months. It basically extended for a whole year — so it was a crypto winter that lasted effectively a year.”
The Economist asked this question first. This is a good question, but if you dig a little deeper, you will quickly realize that’s ambiguous. Thus, open to the two opposite interpretations.
The first one is optimistic.
In the previous crypto winter in 2018, bitcoin lost more than 80% of its value before bouncing back, eventually rising to its November 2021 peak of around $69,000.
No one can argue that eighteen months or a year and a half were (was) worth living (surviving) in a crypto hibernation.
“By 2021, crypto winter was a distant memory. The bull run sent BTC surging past $60,000 and the cryptocurrency market cap broke $2 trillion for the first time ever in April of that year. BTC and ETH were solidified as the top two cryptocurrencies with BNB, USDT, DOT, ADA, UNI, and LINK showing the new face of the industry.”
“Furthermore, it is necessary to consider that the crypto market is composed of cycles. It is unsustainable for any industry to maintain constant growth.”
If by any chance you aren’t a fan of Monty Python's Flying Circus, then you may like Elon Musk’s thoughts about the “positive effects” of recessions:
Recessions are not necessarily a bad thing. I’ve been through a few of them. And what tends to happen is if you have a boom that goes on too long, you get a misallocation of capital. It starts raining money on fools.
If you are a crypto bull, then nothing can stand in a way of your optimism, and everything can be rationalized.
“In the stock market, people start talking about a bear market when prices decline by more than 20% and there's a widespread sense of pessimism. In the volatile world of crypto, prices can often rise or fall by 20% in a week, so that definition doesn't work.”
In other words: It hurts like hell, but hold the crypto line, and don’t sell!
“It's also worth noting that bear markets are a normal part of investment cycles. According to Seeking Alpha, there have been 26 bear markets in the S&P 500 since 1928.”
The crypto bulls have spoken: this isn’t going to be the last crypto winter. It’s just the second crypto winter. One of many to come.
I have to be fair and give the other - pessimistic side, an equal share of my story.
The broken-hearted crypto bears have a different answer to the question: “Will this crypto winter be the last?” Do we have the right to blame or judge them?
“In fact, the entire market capitalisation of the cryptoverse has shrunk by more than two-thirds since November 2021. Is this, as the crypto bulls say, a much needed correction? Or is this the beginning of a domino effect that could see the entire decentralised finance system unravel?”
You know how they say, be careful what you wish for. If you wished that investing in cryptocurrencies become as “safe” as investing in stocks, maybe that wasn’t a good idea.
According to Bloomberg, Bitcoin now mirrors U.S. stocks to an "unprecedented degree."
What’s the big deal about Bitcoin and stocks “mirroring” each other? Isn’t this supposed to be a good thing?
“Prior to the pandemic, Bitcoin was often seen as a non-correlated asset that could help diversify a portfolio. If crypto now follows the stock market, this narrative no longer holds true. Earlier this year, the IMF also warned that this correlation raises the risk of contagion across markets.”
Do you remember what did Elon Musk say about recessions, “misallocation of capital” and especially about “raining money?” Of course, you do. When you’re neck-deep in the cryptoverse, you become a stickler for details? So, have you heard about the “BTC Rich List” already?
“The bitcoin rich list refers to the list of bitcoin addresses that hold over $1 million worth of BTC. Since January 2021, over 100,000 wallets have met the qualification. Notably, the number swelled by 400% from just 25,000 millionaires five months ago.”
And, how about the “Bitcoin whales,” who hold over $10 million worth of Bitcoin in their crypto wallets?
“In comparison, there are little more than 100,000 addresses with over $1 million worth of BTC and only 9,370 with over $10 million as of March 2021.”
Why the face? The first crypto winter of 2018 lasted 18 months. Do the math. The most optimistic one. Who knows, maybe Bitcoin will be worth more than $69,000. How about $79K, or $89K? Let’s stop at $99K.
Those who survive the second crypto winter will live to tell the tales of new Bitcoin whales.