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Crypto Winter is Upon Us – Here’s What That Means for You

crypto winter

Crypto winter is coming – or perhaps it’s already here. In the wake of the recent BTC and ETH crashes, the crypto industry has been frostbitten.

And though cryptocurrencies are known for their extreme volatility, the wild price fall followed by the Luna and TerraUSD meltdown, which ultimately wiped down half a trillion dollars off the crypto market, is not any ordinary price swing. And experts fear that the worst nightmare for crypto enthusiasts and investors is finally knocking on the door.

So, here we will be answering the most important questions for you: What is crypto winter? How bad is the collapsing market? What is behind the crashing cryptocurrencies? And can the de-fi industry rise again?

What is Crypto Winter?

Similar to the stock market, the cryptocurrency market also goes through a cycle of elongated bear and bull phases. The crypto market can witness a downward trend if persistently bearish investor sentiments drive the price of major digital coins considerably low. Such a steep downfall rings the bell of crypto winter.

Though there is no universally accepted definition, a crypto winter usually occurs when crypto prices fall substantially low and stay for months and years with no sign of recovery.

According to analysts, the recent abrupt selloff in the market signals the start of winter for cryptocurrencies. However, some think it may even be worse. 

According to Paul Jackson, global head of asset allocation research at Invesco, cryptocurrency may be entering an “ice age,” where values fall precipitously for several years, and investors lose interest.

The Crashing Crypto Market: The Unfolding Nightmare

In this instance, the negative factors are devaluing cryptocurrencies at an alarming rate. 

According to Time, the two largest cryptocurrencies, Bitcoin and Ethereum, have both fallen more than 30% in the past week. The bitcoin price dipped below $20,000, its lowest point since December 2020, and is now 70% below its all-time peak in November 2021.

The price of Ethereum dropped to below $1,100, its lowest level in more than a year and a half and more than 75% below its all-time high, which was also reached in November 2021.

But, these are not the only cryptocurrencies to experience a steep decline. Leading alternative currencies like Cardano and Polygon are both down more than 60% year so far, according to Forbes. 

Major cryptocurrency exchanges Gemini and Coinbase have both recently announced employment restrictions and layoffs as a result of the crash. All of which are citing the start of crypto winter.

What are the Catalysts Behind the Crashing Crypto Market?

The current crypto crash is not out of the blues. In fact, the market has been bearish for the past couple of months now. Some of the primary reasons driving the downfall, according to experts, including

  • Hike in the interest rates
  • Regulatory challenges
  • Bitcoin in the oversold zone
  • Lack of liquidity in the crypto market
  • Volatility caused by crypto influencers
  • Crypto security branches cause waves of fear amongst investors
  • Supply and demand
  • Crypto’s correlations with the stock market

However, here are the two major catalysts behind the crashing crypto market.

Rising Inflation

The collapse officially started last Friday, coinciding with a selloff in US stocks brought on by higher-than-anticipated inflation and worries about more aggressive interest rate increases by the US Federal Reserve

Moreover, although cryptocurrency markets should ideally operate independently of conventional markets, in the past, they have also been susceptible to changes in the mainstream financial system.

Luna-Terra Crash

Another huge instigator is the Luna-Terra crash.

When TerraUSA, Luna’s sibling currency, severed links to the US Dollar three weeks ago, the sharp cryptocurrency drop officially started. Since TerraUSD and Luna are algorithmically linked, TerraUSD’s collapse caused Luna to disappear essentially.

In only a few days, the value of the digital currency fell from $20 billion to practically zero. This resulted in the crypto market suffering a $40 billion loss as a result, which snowballed into a trail of lost investments.

The YoutTube video by How It Happened explains in detail the rise and fall of Terra Luna, and its impact on the crypto winter:

The Mounting Collapse of Crypto Exchanges

Crypto exchange platforms are the first to take the hit of the upcoming crypto winter. And a bid to combat the freezing crypto winter, companies are forced to take drastic steps by either downsizing or seizing the withdrawals.

CoinFLEX is the latest exchange freezing withdrawals on its platform, triggered by massive selloffs and extreme market conditions. Citing the CEO, Mark Lamb, wrote on the company’s official blog,

“Due to extreme market conditions last week & continued uncertainty involving a counterparty, today we are announcing that we are pausing all withdrawals,”

Furthermore, the pressure on the trading platforms continues to mount, leading to colossal downsizing

Top crypto exchanges, including Coinbase, Crypto.com, and BlockFi, have laid off hundreds of employees. Coinbase, for example, fired almost 1,100 employees, accounting for 18% of its workforce.

The wave of layoffs coincided with a sharp decline in the value of well-known tokens like Bitcoin, Ethereum, and Solana. Moreover, given the lower trading volume, the income of crypto exchanges is falling sharply, leading to even more tension in the already crashing crypto market.

Will the Crypto Currency Market Rise Again?

The future is not particularly promising just yet. Due to the lack of conventional measures, it is extremely difficult to evaluate projects and their genuine business case when working with cryptocurrency (like net profit). The state of the cryptocurrency markets has been gauged by rapid price rise or stagnation, but not all assets can be measured in this way.

Some cryptocurrencies could increase once again, but this is unlikely in the near future. And if cryptocurrency prices do surge again, it will probably take place over a more extended period of time rather than just a few weeks or months.

For now, it’s difficult to predict which currency will increase in value over the next year or two due to the absence of management. 

However, other cryptocurrencies may be ruled out as non-candidates for the next big thing. These include weak cryptocurrencies that have little chance of being utilized in daily life transactions or cryptocurrencies with weak fundamentals and teams (like OmiseGo) (like Ripple).

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