Cryptocurrency Winter; all about it

Fredrick Awino

For a long time, so many people have had  the let’s wait and see attitude towards cryptocurrencies. Risk averse people consider cryptocurrency as some deceptively lucrative bubble which would burst and send investors into great losses. It cannot be possible to claim knowing so much about crypto because a lot of information about them come to bear every single day. Most people, including fintech gurus are just on a steep learning curve like the rest of us. The recent tumbles and nosedive in the performance of stable coin creates more worries than comfort on their reliability as an investment option

WARNING: Investing in crypto, or other markets, can be of a high risk for your savings. Do not invest money you cannot afford to lose, because there is a risk for losing all of your money when investing in crypto, stocks, CFDs or other investments options. For example 77% of retail CFD accounts lose money.

The stable coin commenced melting in early May. Since then, people have been highly focused on Bitcoin. One of the reasons is that it is the first crypto, and it has a large market share in the crypto world. Bitcoin has felt the downward pressure as well as other cryptos, including Polygon, Cardano, and Ethereum.

It is not known whether the crypto market is fizzling down or the market is just experiencing turmoil. The consequence of this crypto winter is highly felt by the investors. For instance, Coinbase, one of the top crypto exchanges, has been canceling job offers. Overall, most companies are downsizing so that they can survive during this troubling period.

Meaning of Cryptocurrency Winter

The term crypto winter is from the Game of Thrones, which is an HBO series. In the film, the motto was that winter is coming. Therefore, it acted as a warning about the lasting effects that it might have on the land.

The same applies to the crypto world. Since November last year, there has been trouble in the crypto market. In such a challenging time, any trader in the crypto market must be vigilant. The market will be highly affected without a single warning. In defining crypto winter, during such times, the prices contract, and they even remain low for a certain period of time.

Over time, the crypto market has felt the impact of world events, especially during the Ukraine and Russia wars which caused trouble in global finance. For instance, the high inflation has resulted in increased United States interest rates. The crypto winter had commenced when Luna and TerraUSD collapsed.

Is it Right to Invest in Crypto Now?

As a trader, there are some things that you should consider before making an investment. For an instant, you have to ensure that you have secured a traditional retirement plan, emergency fund and have also paid off any high-interest debt that you might have. After considering these ideas, then you can commence investing in crypto. Also, remember to consider the risks involved.

Experts have in the past recommended that you just invest 5% of your portfolio. Moreover, it is important to invest an amount that you are ready to lose. You should not invest an amount that you have borrowed to invest in crypto. The reason is that you may lose all that you have invested and will be left to pay a loan that was not even helpful.

Maybe you are wondering about the kinds of crypto to invest in right now? NextAdvisor’s Investability Score shows that Bitcoin and Ethereum are still the best cryptos an individual may invest in. Therefore, it is important to start with the two because they have performed well in the best. Besides, they are the top two well-known cryptos.

What has resulted in the Crypto Winter?

Even before the crash of Luna and Terra UDS, Bitcoin, the popular crypto, was in trouble already. Since November 2021, Bitcoin has lost about 60% of its value. It is the Russian invasion in Ukraine that has put the crypto assets under strain. It has resulted in increased inflation as well as global market nervousness.

The stable coins believe that they are safe. The reason is that they are meant to be tied in a fiat currency. In most cases, they maintain a 1-to-1 peg with the United States dollar. However, the current events prove otherwise. The stable coins are volatile as the other cryptos, including Bitcoin and Ethereum.

Why is it Important?

The current crypto crisis is so different from 2018. In the past, the value of Bitcoin dropped by about 80%. Later it recovered, and the market reached new heights. Unfortunately, this time is different. Currently, the credibility of the crypto market is in jeopardy. The current market does not show revival indications. Therefore, we all expect a crypto winter.

Benefits of Crypto Winter

The first advantage is that such a thing had happened earlier on. Initially, crypto had fallen, and it rose again. Meaning that even this time will come to pass, and the cryptos will commence doing well. The last one lasted from January 2018 to December 2020. During this time, Bitcoin lost about half of its while others, including Litecoin and Ethereum, sharply dropped. This one just started in November 2021, meaning that it has not taken a long time. ‘

The cryptocurrency winter results are almost the same as those in the bear markets in the case of other asset classes. The good thing about the crypto winter is that it weeds out the young start-ups while presenting opportunities for the top firms to mature and prove their products. Most of the start-ups might fall up because they are not patient.

If the market remains in contraction for a long period, many companies might be affected. Both the great and poor ones. However, the good news for those firms is that most of the venture capitalists have amassed war chests they will continue deploying. The crypto winter that ended in 2020 resulted in high growth. It was experienced in most of 2021.


Author Fredrick Awino