Jul 11, 2023 | Updated Jul 19, 2023
A crypto winter is a long period of time when crypto prices dramatically drop below their previous all-time high values.What is Crypto Winter?
The term “crypto winter” refers to a sustained period of negative market sentiment and decline in cryptocurrency or digital asset values.
A crypto winter is similar to a bear market in stocks. Crypto bear markets are when the decline in the value of cryptocurrencies is ongoing. It’s the opposite of the bull market, which is a period when asset prices rise. It occurs once the cryptocurrencies have bottomed out and the prices don’t move enough to make a significant difference. In other words, the market is frozen in “crypto winter”. Essentially, sustained poor performance in the crypto market affects the overall investor mentality.
The first crypto winter lasted for 23 months, from January 2018 to December 2020. The most recent one began in early 2022 and continued through 2023. In the latest crypto winter, the value of all major cryptocurrencies significantly dropped from their all-time highs in November 2021. Bitcoin peaked in November 2021 at around $68,000 with a market cap of $1.28 trillion, but still trailed below $30,000 in Q2 2023.
Crypto winters are characterized by an overall decline in trading volumes, lower asset prices, mass layoffs at major crypto exchanges to cut costs, and crypto crashes. Crypto winters usually occur after the industry has experienced a bull run and the excitement has died down. Generally speaking, it happens as part of crypto market cycles.
Factors Contributing to Crypto Winter
Similar to the traditional stock markets, a number of factors may trigger a downturn in the entire crypto market, leading to crypto winters. It may include:
- Crashes: The collapse of cryptocurrencies often costs the industry billions of dollars and may lead to bankruptcy in some crypto firms and long-term investor fear, which can cause a prolonged bear market that lasts for years after the inciting incident.
- Inflation and interest rate hike: When the U.S. Federal Reserve hikes the interest rate to counter rising inflation, investors become more risk-averse and opt for more stable assets. In return, the prices of riskier assets like cryptocurrencies are dragged down.
- Government overregulation: Government regulations and policy changes, like crypto ban, impact the stability of exchanges as well as market sentiments.
