What is Crypto Winter? Why did It Occur?
The term crypto winter refers to the contraction of prices of crypto assets for a long period. It’s essentially an extended bear market period. According to Winklevoss’ statements, there were three major reasons for the Crypto Winter.
First is the political and economic scenario around the world. With the Russia-Ukraine war, the traditional economy and even the crypto economy dropped drastically. With every destructive move Russia made, the prices of Bitcoin and Ethereum were falling like dominoes.
In February, after Russia launched a special military operation, the price of Bitcoin fell by 8.12%, and Ethereum was down by 13.28 percent. Other currencies followed their footsteps, and the global market cap dropped to $1.57 trillion.
The second reason has been the meltdown of stablecoins, specifically in the case of Terra and Luna. The algorithmic stablecoin attached its value to the USD to avoid volatility. However, in May, the stablecoin crashed.
This was after two users made transactions. One user withdrew $150 million, stating they would use it in a new liquidity pool. Another user exchanged $85 million UST for USDC. People quickly started retrieving their money by selling their assets and cutting losses.
Another recent problem for the crypto industry has been the Celsius scandal. The company filed for bankruptcy on July 13 after being in deep crisis for about a month. It had frozen all its customer accounts, and people could not claim their funds.
According to the court filings, Celsius was $1.2 billion in the red and $5.5 billion in liabilities. About $4.7 of liabilities is in the form of customer holdings. If you look at such astronomical numbers, the trust in the crypto industry is bound to deteriorate.
However, this isn’t the only scandal. Cryptocurrency as an industry is known for rug-pulls, fraudulent companies, and scams. Even the biggest names tend to shock the audience with their actions.
As a result of these three things, the crypto winter has been quite prominent, and the spell will likely run for a while. When will it end? How will it happen?
When will the Crypto Winter End?
This isn’t the first time we’re going through a crypto winter. Previously we had seen the winter from 2018 to 2020. But, post this, we saw the crypto and the entire blockchain industry reach new heights.
Cryptocurrencies such as Bitcoin and Ethereum reached all-time high values. As a result, numerous projects took flight, the NFT and DeFi industries exploded, and all was good.
Usually, with crypto prices, there are events called blips on the price performance charts. In this, a crypto asset first dips drastically, slowly increases, then sees a sudden spike nearly astronomical and reaches a high point, and thereafter, the value drops sharply. Nonetheless, opinions from expert traders suggest that the current crypto winter won't be that much of an enduring event.
These occur only once in a while and are similar to crypto winters. This is because it is not necessary to achieve a new high every time the price drops. Likewise, the crypto industry doesn't need to come out of this winter with sudden spikes. There would be improvements, but one cannot say how fast or slow these would be.
Furthermore, the regulations and laws around crypto assets are being formed and, more often than not, are restrictive. So, only time can tell how this crypto winter will end.