History in the making
When market analysts look back on this time period, they will almost certainly refer to this moment as the crypto winter of 2022. Like many cycles that have come before, Bitcoin (BTC) and the rest of the crypto space went on a parabolic run and is now following it up with a lengthy pullback.
Anyone who may have participated in this industry for some time is familiar with the concept of a “bear market” or a “crypto winter.” Most importantly, they likely know that this period is just another phase of the greater market cycle. Understanding the nature of a crypto winter will ensure that you are better prepared and know what to do to make it through.
Defining a crypto winter
In any financial sector, a bear market is a time of increased selling. As traders continue to push down prices, long term asset holders will eventually begin to sell bitcoin as well. This causes a bearish trend that can last months or years. A crypto winter is the blockchain version of a bear market, but the same principles apply. While no one wants to imagine their precious crypto losing value, these crypto winters are a necessary part of the macro market cycle.
Why is there talk of a crypto winter now?
As you survey the crypto landscape, there is evidence of a crypto winter everywhere. Of course, current market conditions can affect the mentality of spectators, and continuous weeks of falling prices have had everyone in a stir. After nearly nine months of downward momentum without a substantial bounce, many people feel as though the sky is falling.
In addition, the past few months have brought a devastating flurry of bearish market sentiment:
- Coinbase, OpenSea, and other companies have laid off thousands off employees;
- Coinbase’s stock fell more than 80%;
- Terra’s UST implosion;
- Celsius and others freezing withdrawals;
- Three Arrows Capital bankruptcy.
Normally, when you see cascading bearish news like this, it could mean that a market bottom may not be far behind. Once you understand how cyclical markets are, you can gain the foresight to see the course the crypto market is on, which makes for smoother sailing.
Market cycles often repeat
Throughout its lifespan, BTC has endured what is now four major crypto winters. It has consistently followed the same agenda. After a meteoric rise, marked by massive attention from the media, BTC had a blow-off top that spirals into an extensive bear market. To date, these bear markets have lasted anywhere from 260 to 633 days.
Currently, we are around nine months into this crypto winter. While some analysts believe that further lows are still in store, others have pointed to many factors that suggest we have already seen the worst of it. On an optimistic note, in all previous examples the crypto winter was followed by another historic bull run that took BTC and other crypto assets to all-time highs (ATHs). This trend has kept many traders and spectators coming back to this market, even after it felt like it may never recover.
This crypto winter is likely a part of a larger market slump
Before you can make assumptions about the cause of our current crypto winter, you have to also take into account the larger effects that are happening throughout other financial markets. It seems that almost every other asset class is down across the board, including stocks, currencies, bonds, and more. Only real estate has continued to show strength throughout the past year.
Here’s a list of other assets and their current position in relation to their ATHs:
- AMZN: -40%;
- AAPL: -15%;
- NASDAQ: -24%;
- Dow Jones: -12.5%;
- S&P 500: -15%;
- EUR/USD: -18%.
When we consider the data, it’s clear that the problems plaguing the crypto industry are mirrored in almost every other financial sector. In fact, you could make the argument that crypto prices are not down as a result of something being wrong with the industry itself, but rather it is another symptom of the global recession that is transpiring.
Crypto winter warning signals!
Before a crypto winter is officially declared, there could potentially be some warning signs to take note of. While it is extraordinarily difficult for anyone to call an official top to a raging bull market, these factors may be a signal to prepare for a market downturn.
Lower trading volume
While traders can potentially turn a profit in any sort of market, lower trading volume overall can demonstrate that a crypto winter is currently underway, or fast approaching. This is due to the retail speculators losing interest and leaving the market until it returns to a less frenzied state.
The appropriately named “death cross” occurs when a 50-period moving average crosses below a 200-period moving average. This is one indicator that traders and long term holders most certainly take note of. Any instance of a death cross can cause a market to quickly panic, and an excessive pullback could ensue not long after.
Black swan events
Black swan events are moments that shake up the market without any warning. This can be a well-known business closing, a fraudulent organization being brought to justice, or even a political action. It is impossible to prepare for these instances, but how you react can make all the difference. A series of these situations taking place could indicate that a crypto winter is underway. If we look at recent news, such as the Terra implosion or Three Arrows Capital going bankrupt, it’s clear how these black swan events can kickstart a crypto winter or propel us further to the downside.
Bear markets provide opportunities
During sensational bull markets, it may feel like the prices are never going to come back down. However, the momentum can change just like the seasons, leaving bulls rushing for the exits as the bear market begins. According to economists, downswings like these recalibrate the market and help to build momentum for another rise later. The constant flow of recalculating asset value against market conditions is what allows Bitcoin and other cryptocurrencies to find their true worth.
It may be difficult to appreciate a crypto winter as it is underway, but this period of time also brings immense possibilities to take advantage of. Defining a personal or financial plan while you have the available time is the ideal way to build an advantageous foundation for the future.
Most market spectators would agree that trying to keep up with all the news and advancements during one of crypto’s parabolic periods is a preposterous effort. Once things have calmed down, you have considerably more time to take a deep dive into some of your most intriguing projects. What have they accomplished? What are their plans for the future? By studying, planning, and saving during a crypto winter, you will be in an ideal position to capitalize on any future opportunities.
Bear markets are the time to build
For any enterprising souls out there, a crypto winter should be a welcome recess from the non-stop movement of the bull market. You can capitalize on this scenario and start to build your own projects, share your unique vision. There is also a greater likelihood that your voice can stand out, enabling you to build your network and audience.
They’re good because they flush out bad actors
No one should be sad that bad actors get capsized during a crypto winter. As this space has continuously evolved over the years, we have moved from the so-called “wild west” to a place where real regulation, oversight, and consumer protection are being implemented. This is a positive element, and one that everyone should want for the overall good of this industry. As Warren Buffet said, “only when the tide goes out do you discover who’s been swimming naked.”
They don’t last forever
There’s no getting around it – crypto moves fast. What seems like an endless era will be over in just months or even weeks. These market cycles progress at a feverish pace, and regardless of bull or bear market, it will soon change into the next phase. By staying focused on your own personal mission and goals, you will get through any market downturn.