Lots of fresh money flooded into the cryptocurrency market in 2021, just in time for the first “crypto winter.”
The biggest cryptocurrency, Bitcoin, began trading at approximately $48,000 at the beginning of the year but has since fallen to around $18,000 as the year has progressed. It has dropped about 55% so far this year, selling for just over $22,000 right now. Similarly, Ethereum (the second-largest cryptocurrency) price has dropped from about $3,800 at the beginning of the year to close to $1,700 currently.
Why Are We Talking About Crypto Winter?
The current crypto winter is not the first time the market has seen such a phenomenon, but investors are discovering that this one hurts harder than the others. They attribute this to the inflow of new investors last year, as well as a complex mixture of faulty expectations and traditional crypto market volatility.
There has been some unjustified enthusiasm regarding the future of cryptocurrency values. People were too wrapped up in their media bubbles to see the underlying systemic danger in these developments.
A Crypto Winter: What Is It?
The bear market in cryptocurrencies is sometimes referred to as “crypto winter.” Yet, there is a significant distinction between a bear market and a crypto winter. A bear market occurs when prices fall, whereas a crypto winter occurs when they remain relatively stable.
In a crypto winter, an investor would experience no gains, and in a bear market, losses. Despite the market’s recent gains, many investors may have seen either no change or below-average returns on their investments.
The Crypto Market In A Crypto Winter
People lose interest in the cryptocurrency market during these “winter” periods because returns are low. For many traders who lack faith in the current market situation, it becomes a game of waiting. The current crypto winter may persist for another year or two.
Bear markets in cryptocurrencies are as much a part of the crypto sector as the stock market’s annual winter. But some platforms like Biticodes alert you beforehand so that you don’t have to face the bear market.
The previous crypto winter lasted from late 2017 through late 2020, thus this isn’t the first time the market has plummeted and it won’t be the last.
As Opposed To Previous Crypto Winters, Why Is This One So Different?
Many industry experts think that the current market climate constitutes a “crypto winter,” and that investors should brace themselves for periods of stagnant or even declining returns.
According to Teh, “there are much more people in the market today than last time — thus, more people were impacted, there is more noise in the market, and more people are talking about it.”
Moreover, Teh claims that many investors entered the cryptocurrency market anticipating a change in market behavior relative to equities and other assets when interest rates and inflation increased. Many crypto investors are upset and baffled since this has not occurred. Bitcoin’s restricted number of 21 million coins and its speculative character have led some cryptocurrency experts and investors to praise it as a hedge against inflation.
Teh claims that the reason people are becoming angry is that they do not comprehend the situation. Cole claims that the crypto market crash and ensuing winter are very comparable to the property market collapse of 2008 and 2009.
Many cryptocurrency investors have had comparable expectations over the previous several years to those that existed in the mid-2000s, just before the housing market crisis, according to Cole. According to Cole, the market was jolted to its foundation by several events, including the widespread hacking of exchanges and the bankruptcy or liquidation of companies like Three Arrows Capital and Celsius.
Another knowledgeable person has said that the volatility of cryptocurrencies is a major selling point for them.
Contrast the spectacular increase and fall in the value of certain cryptocurrencies like bitcoin with the relatively constant returns you may expect from investments in stocks and bonds.
Since there is a greater chance of a large gain (or loss) in a very short period, high-volatility assets might be appealing to certain investors. The best course of action for crypto investors may be to prepare for and even welcome crypto winters, as well as to implement other strategies for weathering the inevitable market fluctuations.