What awaits us: a long “crypto winter” or short-term frosts?

Any person directly or indirectly dealing with cryptocurrencies is well aware of their high volatility. A protracted recession often results in assets depreciating by 50% or more from their highs. For example, the current crisis has already brought down the price of BTC by more than 65% compared to the November peak. Perhaps everyone also remembers the long period of “crypto winter” 2018–2020. – then, against the background of the unbridled fall of digital assets, many projects were closed. That is why beginners are so afraid to enter the market, and experienced investors in such periods so diligently buy more coins.

How are things in the crypto market today? Will a large-scale drop in the value of coins bring us a real “winter”? Or is it not so sad? Let’s analyze the opinions of experts together and find answers to these and other questions.

Is the collapse just around the corner?

As soon as the Bloomberg Galaxy cryptocurrency index fell 60% below the bar recorded in November 2021, many experts had questions. The gurus began to talk about what awaits the crypto world – a protracted decline or just a temporary pause?

Jared Dillian, a well-known publicist (author of the best-selling book “All the Evil in This World”) and investment strategist at Mauldin Economic, believes that the current sell-offs of cryptocurrencies can lead to very bad results – even though their volumes are not yet as significant as in previous periods of collapses.

But after all, the capitalization of the digital asset market during the previous cycles did not yet exceed a trillion dollars. And the loss of almost 90% of the value of hundreds of coins helped to feel the depth of the current situation. Even digital gold – bitcoin – sank by more than 65%, which significantly hit investors’ wallets.

Bloomberg Galaxy Cryptocurrency Index Chronicles 2018-2022 Source – Bloomberg

Warnings that the current situation is about to become a reality have sounded as far back as 2021. Then, against the backdrop of a bull market and super profits, investors at bitcoin conferences demonstrated not only superiority, but also not very worthy behavior. For example, a huge number of crypto-skeptics were simply hounded then, showering them with a hail of ridicule on Twitter – just because they dared to compare a bull market with a bubble.

Dillian recalls a speaker from one such conference. This person used to be mining Ethereum. He perfectly understood the essence of the “crypto winter” and spoke about it with confidence, since in the midst of this phenomenon he invested almost all the money in equipment for mining Ethereum. The miner bet a lot on the future growth of the coin. It is noteworthy that in the end he managed to assemble a farm of the desired configuration, but soon after that he abandoned the production. Now equipment purchased for many thousands of dollars functions as cloud storage.

The fact is that experts recognize the great potential of blockchain technology, which underlies the functioning of cryptocurrencies. At the same time, no one knows what state this technology will be in just ten years from now. However, venture capitalists are confident in the blockchain and continue to invest generously in the decentralized internet, receiving tokens in return. Today, only on NFT projects, investors have made huge fortunes. Unfortunately, their income has declined in recent months.

It should be noted that the dot-com crash that broke out in 2000 had such a negative impact on the minds of investors that for the next ten years they were frankly afraid to invest in technology. Last year, at the peak of popularity and the rise in the value of cryptocurrencies and NFTs, large venture capital companies invested heavily in digital assets.

But for quite a long time now, these investors have not been able to make a profit, as the market has changed the trend. And that’s okay. Especially in working with assets, the value of which is based on people’s confidence in their value, but is not supported by material factors. This is what we are now seeing in the stock market – stocks that did not have a foundation suffered.

Interestingly, in the current situation with the collapse of digital assets, many users no longer think about the rally of bitcoin – they are interested in the future of the blockchain. This technology has huge potential. Will cryptocurrencies be worth more tomorrow than they are today? Nobody has an answer to this question. Most likely, after a certain time period, another bull market will begin, and the value of some cryptocurrencies will skyrocket.

But Dillian is not 100% sure of this outcome. Perhaps it will be a completely different technology, also able to amaze the imagination. In any case, giant companies will appear in this industry – just as it already happened after the collapse of dot-coms with Amazon, Google, Facebook. Then only truly good projects remained afloat.

Naturally, Dillian believes that the cryptocurrency will not disappear completely. But unpromising assets will leave the market, in which crypto enthusiasts do not see any benefit and do not trust them.

What do other experts say?

Some gurus avoid apocalyptic predictions about the coming crypto winter. Vitalik Buterin, the co-founder of Ethereum, sees the prospects for improving the technology. Projects that were originally designed for the long term will pick up and continue to move forward even after they decline. That is why advanced crypto experts welcome the onset of a bear market. After all, it is he who can change literally everything in the industry.

Du Jun, co-founder of crypto exchange Huobi, sees the current situation as a pattern. This has already happened during the Bitcoin halving periods. It is quite expected that the cycle will repeat itself in 2024, after the reward for a correctly found solution in the Bitcoin network decreases. With a high degree of probability, digital gold will restore its positions by the end of 2024 or the beginning of 2025.

However, June also stipulates force majeure situations – for example, changes in the course of a pandemic or the protracted nature of hostilities in Ukraine. All this can radically affect the likely course of events.

Do not forget that any cryptocurrency is a rather volatile asset, often supported only by the sheer enthusiasm of network participants and investor expectations. That is why the situation can change at any moment. And if you really want to invest profitably, and not lose them, you must not make mistakes when choosing the time to invest. And for this you need knowledge or the help of an expert.

Sources: Bloomberg, CNBC

Disclaimer. Investing in any financial asset carries the risk of losing capital. Nothing in this text can be considered an investment recommendation or an offer to buy/sell any financial instruments. For all their actions in the stock market, each investor bears full responsibility independently.