1. What is Crypto Winter?
This is similar to bear markets in other assets. A stock is in a bear market if the benchmark index drops at least 20% from its previous peak. Winters for cryptocurrencies are usually characterized by dramatic declines, followed by long periods of falling prices and low trading volumes. His one recession that started in 2018 caused the market value of all crypto assets to drop by as much as 88% of his, according to tracker CoinMarketCap. According to rival tracker CoinGecko, it fell 71% between its peak in November 2021 and its low in mid-June, wiping out an estimated $2 trillion market value.
2. What caused the cryptocurrency winter?
In its short life, the cryptocurrency market has become synonymous with frenzied booms and panic-induced busts. Bitcoin lost about two-thirds of its value in 2014. This is partly due to the failure of major cryptocurrency exchanges. The 2018 slump came amid a regulatory crackdown on so-called initial coin offerings, ushering in the demise of thousands of new cryptocurrencies.
3. How did this happen?
This time, forces beyond the crypto world played a role. Investors flocked to blockchain startups and digital assets as central banks eased monetary policy in response to the coronavirus pandemic. Then, as central banks began to reverse course, crypto assets plummeted, exploding the notion that they enjoyed a similar status to gold as an investor haven during times of economic uncertainty. The recession triggered the collapse of the TerraUSD stablecoin, a digital token designed to remain pegged to the US dollar. This led to the bankruptcies of hedge fund Three Arrows Capital, crypto broker Voyager Digital, and crypto lender Celsius Network. Prices fell further in the weeks that followed as investors wondered how far the contagion would spread.
4. Why were you so brutal?
Even by the industry’s own volatile standards, it was a spectacular defeat. Cryptocurrency has matured since the days when it was a core obsession of the ‘true believers’ and shunned by most investors. It was thought. The implosion of TerraUSD, Celsius and others has come as a shock not only to venture capitalists who have raised tens of billions of dollars, but also pension and sovereign wealth fund managers and millions of smaller investors who have embraced cryptocurrencies in recent years. . For crypto startups with astronomical ratings. The recent bull market has been built on a shaky foundation as many investors have taken out large amounts of debt to bet on digital coins and projects, often using other cryptos as collateral. It turned out that
5. What is the fallout?
The damage done to both institutional and small investors puts pressure on governments to drag cryptocurrencies onto the same trajectory as traditional finance and improve regulatory oversight to avert more disaster. I’m here. Critics see the recession as evidence that crypto assets are still too risky to fit into traditional investment portfolios. Even cryptocurrency cheerleader Elon Musk has taken a step back. His electric car company, Tesla, has sold 75% of his Bitcoin holdings. A number of cryptocurrency businesses have laid off staff, including exchanges Gemini Trust and Coinbase Global, and non-fungible token marketplace OpenSea. Investors were wary of jumping in too early for fear that problems in some parts of the industry could spread quickly in unexpected ways, resulting in huge losses elsewhere. Risks were underscored by liquidity tightness on FTX, the exchange founded by star cryptocurrency entrepreneur Sam Bankman-Fried, due to a surge in customer withdrawals during the week.
6. What is the outlook?
The winter of 2022 has given ammunition to critics who see cryptocurrencies as purely speculative investments. As proponents often argue, cryptocurrencies are not divorced from the fate of traditional financial assets and may be just as vulnerable to rising interest rates as other investments such as technology stocks. I showed that. Almost a year into the winter, prices and volumes were still weak, and some crypto startups with viable business plans were running out of cash. Many of the cryptocurrency miners, who play a key role in ordering transactions on the blockchain, the digital ledger that underpins cryptocurrencies, saw the value of the tokens they earned drop, and rising energy prices drove up electricity bills. , was in a pinch.
Cryptocurrencies have a history of recovery, and some large institutional investors were unfazed by the crash. In August, BlackRock Inc. announced the first-ever fund to allow direct investment in Bitcoin. In the same month, hedge fund firm Brevan Howard raised more than $1 billion for its cryptocurrency fund. Just as the last recession led to the emergence of fewer, stronger businesses, ventures surviving this winter will have fewer competitors and more space to mature and improve their products. Increased regulatory crackdowns, while adding to near-term uncertainty around cryptocurrencies, could ultimately make them a more respectable and stable asset class.
FOR CRYPTO MARKET PRICE: {CRYP}; TOP CRYPTO NEWS: {TOP CRYPTO}.
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