The central theses
- The crypto market started falling from its peak price in November 2021, but did not technically enter a “winter” phase until June 13, 2022.
- Previous trends suggest that the crypto winter will last another three to four months, but it would take another three years for prices to fully recover to their November 2021 glory. Trusting past trends can be a foolish proposition with a commodity this new.
- Government policies worldwide are likely to impact crypto’s recovery, or lack thereof, and are partly responsible for the slow burn they have experienced throughout 2022. This may be bad for crypto, but good for the planet.
Cryptocurrencies had a big down year. If this were a financially sound stock and you were a long-term investor, now would be the best time to buy. But cryptocurrency markets don’t behave like the stock market, making it difficult to gauge whether crypto will ever recover.
Why crypto isn’t as easy to predict as the stock market
Crypto doesn’t have a very long history. Bitcoin, the first current-generation digital currency, was launched in 2009. The New York Stock Exchange for comparison started in 1792. We can easily look back on historical stock market trends, but we don’t have enough data for crypto to understand how it performs in different economic conditions.
Additionally, cryptocurrency markets are less regulated than others, such as B. the stock market. While agencies like the Securities and Exchange Commission and FINRA keep a close eye on securities firms in the stock market, crypto companies operate with relatively little oversight. That exposes investors to additional risk, including the additional risks of scams and fraud.
Finally, cryptocurrencies operate outside of the backing of any major government or central bank. Unlike US dollars and euros, most cryptocurrencies derive their value from the communities that use them. They are difficult to value and few are backed by dollar-based assets.
Unlike investing in stocks, there are no metrics for an affiliate that would provide a complete statement of whether your crypto investment is “good” or not. While there are many ways to value a stock, analysts struggle with digital assets like bitcoin and ether.
A Brief History of Crypto Winters
Crypto winter is a term similar to a bear market in the stock market. A crypto winter means an extended period of low asset prices compared to recent highs. As of this writing, crypto prices are down significantly from the 2021 highs.
We have very limited data on crypto winter as cryptocurrency has experienced only two such events in the past allowing us to make a meaningful comparison. While it’s easy to chart stock market patterns and look for recurring ups and downs, it’s more difficult with cryptocurrencies.
The crypto crash of 2018
Crypto — and Bitcoin in particular — has skyrocketed in value in 2017. It was below $1,000 in January, but rose to almost $20,000 in December. This wasn’t because it suddenly became more popular or demanded, although many first started paying attention to it after that meteoric rise.
Because the price surge may have been caused in part by market manipulation by large investors, price changes may not always have been what they appeared. In particular, one user with a large wallet known as crypto whale was reportedly involved in two types of manipulation:
- spoofing When someone submits a fake crypto bid to stimulate demand, only to withdraw the bid after artificially inflating the price.
- Wash the trade. When someone buys and sells from themselves, it appears as if the cryptocurrency is being traded and in demand at a higher price than it actually is.
The crime was so serious that the Justice Department launched an investigation. After the artificial price hikes, prices fell in spurts until November 2018, when the official crypto winter of 2018 kicked in. The bear market officially started when the price of crypto assets was lower than what most crypto holders bought them for.
This bear market lasted about four and a half months in total. While crypto exited its bear market in early April 2019, it only regained momentum a year later, in 2020, when the pandemic hit.
Our current Crypto Winter
Everyone has reacted differently to the pandemic, but initially it was destabilizing for everyone. Many lost faith in their leaders and governments, and clung to cryptocurrencies for an investment they perceived as “safer” than the infrastructure they saw closing down around them.
Over the next year, it continued on its bull run. But behind the scenes, in 2021, two of the biggest crypto-mining countries — Russia and China — began to crack down on energy-intensive mining operations with stricter policies.
This happened at the same time as global inflation was picking up steam and rumors that the US Federal Reserve would soon be raising interest rates became more frequent. These circumstances caused investors to flee the crypto markets in droves.
Digital asset manager Grayscale Insights wrote that the decline from the peak market price started in November 2021, but we didn’t enter a true crypto winter – or bear market – until June 13, 2022.
What happens after a crypto winter?
Just because crypto is moving out of a bear market doesn’t automatically mean that prices will return to previous highs, not even close. The last time a crypto winter happened, investors had to wait about a year for prices to rally more consistently. Bitcoin only recovered from its 2017 peak in early 2021.
From there, it shot up and briefly appreciated in value. But based on a model where crypto winter and boom cycles occur roughly every four years, it could be 2025 or early 2026 before we see prices return to their November 2021 highs.
Assuming the four-year pattern holds, this could be an ideal time to start buying more cryptocurrencies. But this is an extremely risky decision that is only ideal for long-term investors as cryptocurrencies are risky and there is no guarantee they will ever recover.
Will Crypto Ever Recover?
Crypto is likely to deviate from its current downtrend, but there is also a good chance it could drop to zero. Steps from China restricting crypto, for example, could be the first of many as governments and environmentalists battle crypto’s massive power consumption.
Tiny El Salvador has made bitcoin a national official currency, but other nations are considering serious regulations and restrictions. Government officials say they need additional laws on digital assets to protect consumers and the environment.
To help you dip your feet into digital assets without buying crypto outright, consider Q.ai’s Crypto Kit. This investment portfolio uses a mix of assets to give you crypto exposure without jumping through hoops to create a crypto wallet (reading account) and monitor these currencies 24/7.
You can always enable portfolio protection on these kits to protect your profits and reduce your losses, no matter what industries you invest in.
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