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A Crypto Winter Is Setting In: Will This be the Last?

Crypto winter refers to a prolonged bearish period where asset prices persistently fall over many months. Read on to know how to survive a prolonged winter.

July 4, 2022

Crypto winter is a term that’s making the rounds again as the global crypto market has shed $1.2 trillion in the last three months. Since the stablecoin meltdown of early May, all eyes have been on Bitcoin (BTC), which is seen as an indicator of the health and wellbeing of the sector as a whole due to the largest presence in the cryptocurrency market.

When Bitcoin’s price plunged more than 84% during the last crypto winter period, it spread panic throughout the rest of the market and caused a vast majority of altcoins to plummet in unison. This caused widespread redundancies across the blockchain industry, hindering mainstream adoption and resurfacing predictions of bitcoin crashing to zero.

Like Bitcoin, Ethereum (ETH) and other altcoins including Cardano (ADA) and Polygon (MATIC), are also experiencing downward pressure and are down more than 60% in 2022.

Moreover, major crypto exchanges Best Crypto Exchanges such as Coinbase and Gemini announced hiring freezes and layoffs in early June. Shares of Coinbase have fallen 86% from their 52-week highs, and the company has announced plans to lay off roughly 18% of its workforce as the crypto market joins the U.S. stocks in a bear market.

Twins Tyler and Cameron Winklevoss, the CEO and president of Gemini, said in a June blog post that the industry was entering a contraction they called “crypto winter.”

The Winklevoss memo cited “current macroeconomic and geopolitical turmoil” as a cause for this change in the season: “This is where we are now, in the contraction phase that is settling into a period of stasis – what our industry refers to as ‘crypto winter.’”

What Is Crypto Winter?

Crypto winter refers to a poorly performing cryptocurrency market. A crypto winter signifies negative sentiment and lower average asset values among a large swath of digital currencies.

Crypto winters have a major impact on investor mentality, and it’s sometimes easy to spot a crypto winter because the downturn may come with a double-digit percentage drop in crypto values.

From late 2017 to December 2020, there were several crypto winters when crypto prices fell and hovered far off from prior peak prices. There are no widely accepted, specific guidelines for how far cryptocurrency prices must fall to be considered a crypto winter. But market leaders and influencers tend to agree publicly when one has begun, as was the case in early 2022.

It is impossible to accurately predict future price changes due to the volatility of crypto markets. However, it is wise for crypto investors to be aware that crypto winters happen.

How Is Crypto Winter Different From a Bear Market?

A bear market is a period when the price of a financial asset continuously decreases, and a price decrease of 20% or more can be considered “bearish.” A bear market is often characterized by pessimism and irrationality, consequently resulting in further price drops (due to bad trades or strategies made due to panic). Bear markets can last anywhere from several weeks to several months. In fact, a secular bear market can last as long as 20 years.

In the crypto world, the term “winter” refers to a season where stocks and currencies are frozen or no longer “hot.” They’re no longer interesting, in demand, or seen as a valuable commodity. During a Crypto Winter the value of an asset is pretty much stagnant—neither rising nor dropping, just completely frozen.

A crypto winter typically occurs between crypto bull cycles, when the initial excitement of the price peaking finally dies down. When the market begins to show signs of life again (i.e., prices rising, assets being purchased, active trading), that’s referred to as a “crypto spring.”

Thus we may say that the difference between the two lies purely in timing. Both terms are used to describe low points or declining spaces in the market. A bear market is used when the drop in an asset’s value is ongoing. A crypto winter happens when the drop has tapered off and the price is no longer moving enough to make a difference.

When the trend shows a flat line (more horizontal than angled, few blips in between), it’s a crypto winter. If the trend shows a continuous, downward line (regardless of how steep), it’s a bear market.

How to Survive a Crypto Winter?

We should remember that dips – even prolonged ones – are a normal part of investing. This can help investors avoid panic selling and mitigate many extra risks. Here are three ways to protect yourself.

1. Many Cryptocurrencies and Platforms Could Fail, so Plan Accordingly

There is a number of crypto projects that did not survive the last crypto winter back in 2018. Smaller altcoins with little or no utility are more likely to fail than more-established ones. Now is the time to stick to bigger crypto projects.

Crypto platforms themselves could also collapse. Thus if you keep your digital assets in a custodial wallet on a crypto exchange or lending platform, find out what protection you have if the platform goes under. For example, Coinbase recently alerted customers to the fact that their assets could be at risk if it went bankrupt.

To safeguard yourself against platform failure, move your digital assets into a crypto wallet you control. Bear in mind that if you lose the password to your wallet, there’s no handy “forgot password” button.

2. Only Invest Money you can Afford to Lose

When buying high-risk assets, only use the money you’re comfortable losing. If you buy crypto using the money you need for other financial goals, there may occur a complete crypto collapse and derail your long-term plans. You may also be forced to sell your assets at a loss because you can’t afford to wait for prices to increase again.

Prioritize other goals, such as creating an emergency fund or paying down debt, over any form of crypto investing. In this way, you will have other safer assets to fall back on, in the case crypto fails. When the crypto market recovers, prices may eventually soar again. But they may not, so don’t bet the house on it.

3. Prepare for Further Price Dips

You may come to the expression “buy the dip” on social media when crypto prices fall. This can make sense in certain situations, but there are a lot of caveats. Prices may fall more and more. If you’d bought the dip in January when Bitcoin was down about a third on its November high, you’d still be looking at significant losses today.

There are investors that use dollar-cost averaging – buying smaller amounts at regular intervals – to even out some of the volatility. For example, if buying Bitcoin may be worth $1,000 in one go, dollar-cost averaging might involve spending $100 at set intervals. That way, you’re not stuck trying to time the market, and if the price does continue to fall, you’ll buy at least part of your BTC at the lower price.

Will Crypto Come Roaring Back?

When predicting the future of the crypto market, most experts say the “stronger cryptos” shall prevail.

“I don’t expect crypto to come roaring back as it did in 2021 because the tailwind of Federal Reserve monetary policy has actually become a headwind for the asset class,” Fidelity Investments CEO Abigail Johnson says, adding that despite the headwinds, we could still see the cryptocurrency market rise from the ashes.

But some investors love the pullback, viewing it as a time to double down on the market for the long term.

When Bitcoin is trading at around $30,000, slightly less than half its 52-week high, investors view it as an opportunity to buy at a discount. They are banking on a crypto revival once the global political and economic crisis settles.

“This is my third crypto winter. There’s been plenty of ups and downs, but I see that as an opportunity,” Johnson told an audience at Consensus 2022 in Austin, Texas. “I was raised to be a contrarian thinker, and so I have this knee-jerk reaction: If you believe that the fundamentals of a long-term case are really strong, when everybody else is dipping [out], that’s the time to double down and go extra hard into it.”

However, It’s impossible to predict accurately when a crypto winter will begin or end. Following cryptocurrency news and tracking activities among cryptocurrency communities on social media networks like Twitter, Reddit, and Discord can offer insights into investor sentiment and planned investments.

The Crypto market is still relatively new and unregulated and there’s a small chance it could collapse completely. The trick to surviving a prolonged winter is to prepare for the worst and hope for the best.