- The cryptocurrency market started declining from its peak price in November 2021 but did not technically enter the “winter” phase until June 13, 2022.
- Previous trends suggest that the crypto winter will last another three to four months, but it will take another three years for prices to fully recover to their glory in November 2021. Confidence in past trends may be a foolish task in such a new commodity.
- It is possible that government policies around the world will affect the recovery of cryptocurrencies, or the lack of it, partly to blame for the slow burn they have suffered throughout 2022. This may be bad for cryptocurrencies but it is good for the planet.
Cryptocurrencies have experienced a significant decline in a year. If it’s a financially sound stock and you’re a long-term investor, that should make this a time as good as any to buy. But cryptocurrency markets do not behave like the stock market, which makes it difficult to assess whether crypto will recover.
Why is cryptocurrency like the stock market not so easy to predict
Cryptocurrencies do not have a very long history. Bitcoin, the first generation of current digital currencies, was launched in 2009. The New York Stock Exchange, for comparison, started in 1792. We can easily look at historical stock market trends, but we don’t have enough data for cryptocurrencies to understand how they work under the circumstances. different economics.
In addition, cryptocurrency markets are less regulated than other markets, such as the stock market. While agencies like the Securities and Exchange Commission and FINRA keep close tabs on stock market investment firms, crypto firms operate with relatively little oversight. This exposes investors to additional risks, including additional risks of scams and fraud.
Finally, cryptocurrencies operate outside the support of a major government or central bank. Unlike the US dollar and the euro, most cryptocurrencies derive value from the communities that use them. They are difficult to value, and few are backed by dollar-based assets.
Unlike investing in stocks, there are no metrics for an associated company that would tell a complete story about whether or not your investment in cryptocurrency is “good.” While there are plenty of ways to value stocks, analysts struggle to do so for digital assets like bitcoin and ether.
A Brief History of Crypto Winters
Crypto winter is a similar term for a bear market in the stock market. Crypto winter indicates a long period of lower asset prices compared to recent peaks. As of this writing, cryptocurrency prices have dropped significantly from their 2021 highs.
We have very limited data on crypto winters, as the cryptocurrency has only experienced two such events in the past that gives us a meaningful comparison. While it is easy to plot stock market patterns and look for recurring tides, this is more of a challenge with cryptocurrency.
Crypto Crash of 2018
Crypto — and Bitcoin in particular — soared in value in 2017. In January, it was under $1,000, but by December, it was close to $20,000. This was not due to its sudden increase in popularity or increased demand, although many began to be interested in it for the first time after such a meteoric rise.
Since the sharp rise in prices may have been driven in part by market manipulation by large investors, price changes may not always be what they seemed. In particular, one user with a large wallet, known as the crypto whale, is said to have engaged in two types of manipulation:
- plagiarism. When someone sends a fake offer of cryptocurrency to increase the demand, only to cancel the offer after the price has been artificially raised.
- wash trade. When someone buys and sells from themselves, the cryptocurrency appears to be manually traded and demanded at a higher price point than it actually is.
The crime was so serious that the Ministry of Justice opened an investigation. After the artificial price increases, prices fell proportionately and exploded until November 2018, when the official crypto winter of 2018. The bear market officially started when the price of crypto assets was lower than what most cryptocurrency holders had bought.
This bear market lasted for four and a half months. While the cryptocurrency exited its bear market at the beginning of April 2019, it didn't start gaining strength again until a year later, in 2020, when the pandemic hit.
Our current crypto winter
Everyone reacted differently to the pandemic, but at first it was destabilizing for everyone. Many lost faith in their leaders and governments and settled on cryptocurrency for what they saw as a “safer” investment than the infrastructure they saw shut down around them.
During the following year, she continued her upward trajectory. But in the background, two of the largest cryptocurrency miners — Russia and China — began cracking down on energy-intensive mining operations with stricter policies in 2021.
This happened at the same time that global inflation took off, and rumors that the US Federal Reserve would soon raise interest rates began percoalte. These conditions have caused investors to leave the cryptocurrency markets in droves.
Digital asset manager Grayscale Insights writes that the dip from the peak market price began in November 2021 but we didn't enter a true crypto winter - or bear market - until June 13, 2022.
What happens after the crypto winter?
A cryptocurrency exiting a bear market does not automatically mean that prices will return to their previous highs, not even a close. The last time there was a crypto winter, investors had to wait about a year for prices to rise more steadily. Bitcoin didn't recover to its 2017 peak until early 2021.
From there, go to the top, increasing its value for a short while. But based on the model where crypto winter and boom cycles occur roughly every four years, it could be 2025 or early 2026 before we see prices return to their peak in November 2021.
Assuming the pattern remains for four years, this might be the perfect time to buy more cryptocurrencies. But this is a very risky decision and ideal for long-term investors only, as cryptocurrencies are very risky, and there is no guarantee that they will ever recover.
Will encryption recover?
Crypto will probably correct its current bearish trajectory, but there is also a good chance it could drop to zero. Moves from China to restrict cryptocurrency may be the first among many, for example, as governments and environmentalists struggle against the massive use of electricity in cryptocurrency.
Tiny El Salvador has made bitcoin an official national currency, but other countries are considering serious regulations and restrictions. Government officials say they need additional laws on digital assets to protect consumers and the environment.
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