Crypto winter, also known as the “crypto recession,” refers to a period of prolonged decline in the value of cryptocurrencies. While the term has been used by many in the cryptocurrency community to describe a market downturn, unlike a bear market in the traditional financial market, there is no definitive definition for a crypto winter.
Commonly, the period is characterized by a significant drop in the price of Bitcoin and other major cryptocurrencies, such as Ethereum and Cardano. Investors can generally expect an excruciating pain as digital assets typically drop 70-80% in value during a crypto winter.
This prolonged crypto market downturn can be the result of a number of factors, including overhyped expectations and speculation, regulatory uncertainty, and the emergence of a number of high-profile security breaches and scams. But most recently, the turmoil in the market is due to uncertain macroeconomic conditions, such as rampant inflation and rising interest rates.
To understand what a crypto winter might look like, we will have a look at the industry’s past.
History of previous crypto winters
According to an article from The Motley Fool, the digital asset class experienced its first crypto winter in 2014. The cryptocurrency market went through a rough correction after reaching a peak of $16 billion in value in December 2013. The market treaded into 2015, however, with a low of $3.2 billion, representing an 80% descent from the peak.
Crypto was able to touch another all-time high level by January 2018. This time, the collective market cap arrived at an impressive figure of $821 billion. However, as history would repeat itself, the asset class shed more than 87% of its value in the same year. And investors had to wait nearly two more years to see crypto recoup all its previous losses.
Fast forward to today, we saw crypto explode into a whopping $2.9 trillion in market cap in November 2021, as the investment category became more mature and mainstream. Now, the total value dropped to about $830 billion as of November 14, 2022, reflecting a 70% rout in the market, according to NerdWallet.
The fallout of the ongoing crypto winter
The tumultuous market condition has brought havoc upon the crypto world, with scores of collapsing tokens and bankrupt crypto firms. While there are many factors that contribute to a business downfall, the current chain of events was triggered by the unraveling of TerraUSD.
Once thought to be a reliable digital token that pegged its value to the dollar, the algorithmic stablecoin TerraUSD, as well as its sister token Luna, tumbled earlier this year, due to what experts described as a classic bank run on the coin. The collapse resulted in a $40 billion wipeout in investor funds and causing domino effects in the crypto ecosystem.
Celsius Network, a cryptocurrency lender, felt the shock wave of the crypto winter when it had to restrict 1.7 million of its customers from withdrawing and transferring funds in June 2022. The company ended up resorting to bankruptcy protection, with a court filling claiming Celsius’ assets dropped 80% in a span of four months.
Three Arrows Capital (3AC), a Singapore-based crypto hedge fund, had an exposure of $200 million of investment in the Luna coin. Consequently, the undoing of the coin led the company – once managed $10 billion in assets – to be liquidated and its founders into hiding.
Voyager Digital, a cryptocurrency brokerage firm, also paused its customer withdrawals before filing for bankruptcy in July. The company blamed the collapse of 3AC as the primary cause, since 3AC failed to pay back the $350 million loan.
FTX, a former trusted and prominent crypto exchange, is among the latest company to feature in a long list of cryptocurrency failures. Once deemed to be the last pillar standing amid the crypto burning house, FTX filed for bankruptcy on November 28 after facing an overwhelming influx of customer withdrawal requests. Now its former CEO, Sam Bankman-Fried, is expected to be extradited to the U.S. with an FBI escort to be charged with multiple counts of fraud.
A safe gateway to crypto
Considering the sweeping catastrophe happening across the crypto industry, it is no wonder that everyone is retreating from this asset class. However, there is silver lightning as not every crypto firm is unreliable, including HiRiBi, a unique platform that specializes in converting BTC into PayPal dollars.
The platform operates on an intricate algorithm that allows it to offer the best rate on the market. With HiRiBi, generally, users can expect to sell Bitcoin at 5-10% higher than the average price on the market . Also, the service is secured, private, and fast, allowing you to quickly convert Bitcoin into USD, which will be promptly sent to your PayPal wallet. So, if you are still a supporter of cryptocurrency’s future, why not give HiRiBi a try?
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