Crypto winter refers to an extended period of downturn in the cryptocurrency market. This period is characterized by a prolonged period of market downturn, which is often caused by a combination of factors, including market correction, regulatory uncertainty, lack of investor confidence, and fraudulent activities.
What is Causing the Current Crypto Winter?
In 2022, two devastating black swan events shattered many people’s trust in cryptocurrency; Terra Luna and FTX. Terra and Luna are blockchain projects developed to create a decentralized payment network and provide fast and low-cost transactions for individuals and businesses. Terra, the parent network, is a stablecoin whose price is linked to the US dollar by algorithms and game theory. Luna was like Terra’s satellite asset that uses a series of smart contracts and UST as an algorithmic coin to keep the price on par with the dollar.
A significant selloff was triggered when customers were trying to withdraw cash which the algorithms couldn’t keep up with. Luna was forced to sell their bitcoin reserves to save the stablecoin, which culminated in a slump in the value of BTC and impacted the entire crypto market. Luna dropped to -99% in value, losing billions of dollars in just a few days.
FTX, a major cryptocurrency derivatives exchange, was initially lauded for surviving a tumultuous crypto period. However, it began drastically dropping in value on 6th November 2022, losing about 80% of its worth in 3 days. On 11th November, 2022, FTX filed for Chapter 11 bankruptcy. Over 370 million dollars of crypto funds are said to be missing.
The collapse of these major industry players sent shockwaves through the crypto world, so much so that many experts have been predicting a crypto ice age. Over one trillion dollars in market value was wiped out from crypto. The total market capitalization of all cryptocurrencies lost about 60% of its value last year, falling from a peak of $2.9 trillion in November 2021 to as low as $900 billion.
However, it is worth noting that the unprecedented crypto winter of 2018 did not spell doom or result in. the end of the crypto industry. The 2018 crypto winter period saw many projects shut down, some blockchain-based companies closed their doors, and many investors and traders were left with significant losses. However, the aftermath saw the crypto market bounce back stronger, and some crypto asset prices reached new all-time highs. This indicates that crypto has demonstrated resilience, and the long-term potential of blockchain technology remains viable.
Will the Crypto Winter Continue in 2023?
The outlook for cryptocurrencies in 2023 remains cloudy, and the actual reason why bitcoin predictions for 2023 are so all over the place is that no one knows for sure if the crypto winter will continue. If you are a crypto holder, you most definitely would not want the crypto winter to extend into 2023. Still, as you look through all the speculations and analysis, it’s best to anticipate every situation and scenario and make evaluations and decisions based on your comfort.
