The Crypto Winter: Are There Any Advantages?

Any investor in cryptocurrency knows that patience is key. While there can be periods of flourishing coins and rising trade prices, there can also be times when assets fall across the board, leading to negative sentiment and uncertainty amongst a number of portfolios.

In traditional finance, this is referred to as a bear market. This is when an index such as S&P 500 or a single stock has fallen by 20% or more over a prolonged period of time. In Wall Street terms, the bear market refers to the market itself retreating into a sort of hibernation, while a bull market refers to the surging of stock like the charging of a bull.

For crypto, although it might have a different name, the sentiment is very much the same. There are positive times, such as Bitcoin’s all-time highest price of $67,566 in November 2021 – but there are also negative times, such as Bitcoin’s drop of 70% in the months after. These are the moments when the bears go to hibernate and the cold of winter truly begins to be felt.

The last time this occurred was between January 2018 to December 2020, and for any investors who have been practising the art of patience, it looks like that art is going to have to be put into action yet again.

Has A Crypto Winter Returned?

After reaching its highest price in November last year, Bitcoin has since fallen to a current value of around $20,000. Ethereum is similarly having a cold patch, having dropped from a high of $4,891 to around $1,000 in the space of two months between November and January. The stock markets are similarly suffering, with only gold seeming to stay unscathed.

Despite the likelihood of Ethereum’s price rising after its move to a proof-of-stake (POS) consensus mechanism, it is unclear how long both these crypto exchanges and the rest of the market itself will be hovering in limbo. If the winter of the past gives any indication of the present, however, it could be time to slip on the gloves and ice shoes and prepare to climb a pretty steep mountain.

What Causes A Crypto Winter?

In cryptocurrency, the seasons can change for almost any reason at all. This is very in tune with the nature of crypto itself. By its own concept, cryptocurrency is volatile and unstable, with the price of Bitcoin and other exchanges changing day to day. Its value is determined by supply and demand, both of which can be affected by anything from public opinion to the inflation of traditional fiat currencies.

For this crypto winter, specifically, it would be reasonable to suggest that the current dip is due to exterior, global politics. The war between Ukraine and Russia is bound to have had an effect, both for digital and traditional finance across the world. This is the first war in Europe since World War II, and according to Bone Fide Wealth founder Doug Boneparth, any war as globally impactful as this will lead to a “tremendous amount of volatility” regardless of asset class.

Is There Any Good News To Be Found?

Another possible cause for the Crypto winter is the recent de-pegging of Terra and Tether. Last month, both ‌stablecoins dropped below $1, which similarly caused a ripple effect across the entire crypto community, with investors selling off their coins before any valuations could severely dip.

Likewise, a number of crypto exchanges recently froze their withdrawals, citing “extreme market conditions” as a reason for the pause rather than any technical difficulties. But it is in these extreme market conditions that some positives can be gleaned from the rubble. Ethereum co-founder Vitalik Buterin recently stated that we are indeed entering ‌a new crypto winter, although he has highlighted the benefits that can arise on the development side. Most crucially, these extreme market conditions will hit the companies and investors who have made poor decisions the hardest.

Why Is This A Positive Thing?

Over the last few years, crypto has grown and expanded into a beast which could feasibly overtake the traditional forms of financing in the next decade. Along with this rise, a large amount of hype has been built around it, which has subsequently led to ill-conceived projects which have been minting tokens and convincing hedge fund managers ‌they have value.

According to Buterin, the crypto winter provides an opportunity to allow these useless applications to fall away in favour of projects which are actually sustainable and legitimate, both in their concepts and the people who are involved in them. According to him, if one focuses on the developmental side of things, “we can bank on the industry coming out stronger after this period is over”.

In this way, the current crypto market crash can be seen as something other than a winter. In fact, the winter can be a cleansing flame which eliminates a weakened phoenix into something rejuvenated and pure once again. It is a chance for the market to renew itself and spread new wings.

Are There Other Advantages To Be Aware Of?

Just as there are several reasons that can cause a crypto winter to happen, there are similarly a number of reasons it can be seen as advantageous. For instance, a crypto winter is a good opportunity for investors to sort out portfolios and start things afresh.

When the market is flourishing, it can be very easy to revert a little from your original exchange strategies and try out different things. This can lead to portfolios weighed down by several good decisions and bad decisions. The winter is the time to weed out poor decisions and balance your portfolio more in the favour of the good ones. It is important to use that time to hone your strategies to keep risks to your assets at a minimum. After all, like any other season, the crypto winter will pass and the sun will be felt again.