The Case for Hibernation: Has Bitcoin Taken us to the Latest Crypto Winter?

If you’ve been a cryptocurrency investor for more than six months, it’s likely that you’ll have already become rather numb to the news of Bitcoin crashes wiping upwards of 50% from the asset’s value in a matter of weeks. However, the latest series of price falls for BTC appear to signify that the asset’s widely anticipated second bull run isn’t going to take place, leading analysts to declare thatwe’re at the beginning of a fresh ‘crypto winter.’

Despite Bitcoin and the wider cryptocurrency ecosystem only existing for around 13 years, crypto winters are nothing new either. Following Bitcoin’s 2016 halving event, which halves the amount of BTC awarded to miners every four years, the asset embarked on a rally that saw the asset climb from a value of $653.87 to a peak just shy of $20,000 by December 2017. However, between its 2017 highs and the next halving in 2020, Bitcoin and other altcoins entered a crypto winter, which saw BTC fail to climb to a price anywhere near its previous glories.

Bitcoin’s most recent halving event in May 2020 saw the coin embark on a rally that ultimately formed a double top of $36,576.68 on the 14th of April and $39,044.77 on the 10th of November 2021.

(Image: TheGameLocus)

According to Bitcoin’s stock-to-flow model, the asset should have climbed to a value of around $100,000 at the culmination of its latest bull run. Due to the model’s historic accuracy, investors had been left expecting BTC to rally further before entering another crypto winter, leaving many holders getting burned by the downturn.

Some onlookers are anticipating a harsh crypto winter. Jon Wolfenbarger, CEO of Bull and Bear Profits, has identified a unique but strong historical pattern that indicates that the BTC bear market will follow the two before it, paving the way for a potential 80% collapse from the asset’s November peak - pointing to a price of less than $14,000 just one year from now.

Maxim Manturov, head of investment research at Freedom Finance Europe, believes that Bitcoin’s crash may be more pronounced due to the unprecedented volumes of liquidity arriving during the pandemic and then leaving the asset in recent months.

“It’s worth understanding the reasons behind the rise of BTC and other crypto assets, first and foremost the unprecedented liquidity in the financial system, which contributed to the rise of all risky assets on the planet, setting the stage for the subsequent imbalance in demand in the market,” Manturov explained. Moreover, at one point, bitcoin became one of the protections against inflation and an alternative to gold, which generally drove crypto-assets.

“Therefore, it is worth keeping in mind that the Fed will start to raise rates, cut QE and balance sheets to fight inflation, and in such an environment bitcoin could become more volatile and rebound attempts will be more moderate, there will be more competition for cash and therefore better opportunities for investors and a more realistic risk and reward environment,” Manturov added.

Playing the Long Game

Unperturbed by fears that Bitcoin has entered a prolonged bear market, ARK Investment Management, the firm led by Cathie Wood, has stated that the price of BTC may exceed $1 million by 2030, due to the fact that the cryptocurrency’s global usage is still only in its early days.

ARK added in its Bitcoin outlook that the cryptocurrency is taking market share as a global settlement network. According to data produced by ARK, Bitcoin’s cumulative transfer volume grew an astounding 463% in 2021, and its annual settlement volume overtook Visa’s annual payments volume.

Furthermore, Bitcoin’s technological advancements like the Taproot upgrade and Lightning Network may also help BTC to scale. Institutional ownership of bitcoin is also likely to grow, according to ARK’s findings.

“Bitcoin’s market capitalization still represents a fraction of global assets and is likely to scale as nation-states adopt [it] as legal tender,” Yassine Elmandjra, analyst at ARK, claimed in the company’s __Big Ideas 2022__outlook report, which was released in January. **

ARK’s findings show that it’s possible for the Bitcoin outlook to appear both bleak and full of potential at the same time.

Whilst it appears that we’re entering an extended bear market in which BTC will struggle to recapture its peaks from 2021, this period of consolidation may help to cool investor sentiment and allow institutions like PayPal, Visa, and many challenger banks the time to develop tools to deliver even greater rates of adoption and growth during the next bull run.

As for investors, their options appear clearer for the first time since before Bitcoin’s 2020 halving event. They can continue to hold their BTC through the winter, or cash out in order to catch the bottom at a later date - though this strategy relies heavily on Bitcoin acting in a predictable manner - something that the coin has been far too volatile to adhere to in the past.