The phrase “crypto winter” has resurfaced on the internet as the global crypto market has lost $1.2 trillion in the previous three months. Crypto winter, which is commonly connected with the bitcoin market decline between late 2017 and late 2018, refers to a lengthy negative phase in which asset prices decrease steadily over many months.
During the previous crypto winter, Bitcoin’s price fell by more than 84 percent, sparking fear throughout the market and forcing the great majority of altcoins to fall in sync. This has the unintended consequence of causing extensive redundancy throughout the blockchain sector, impeding mainstream acceptance. and resurfacing predictions of bitcoin tumbling to zero
It wasn’t until mid-2019 that the crypto markets began to show signs of recovery, boosted by record investment from traditional institutions and growing trade tensions between the United States and China, prompting investors to hunt for financial hedging assets.
The previous crypto winter
While cryptocurrency investors are reeling from the dramatic drop in bitcoin and other digital currencies, others believe the worst is yet to come.
Bitcoin, the world’s most valuable virtual currency, momentarily fell below $33,000 on Monday, reaching its lowest level since July. It has subsequently returned beyond the $37,000 barrier (at press time), but it is still down almost 50% from a historic high of nearly $69,000 in November.
Meanwhile, the whole crypto market has lost more than $1 trillion in value since bitcoin’s all-time high, as major tokens like ether and Solana have traded drastically lower in tandem with the No. 1 digital currency. Since its high in November, the value of ether has more than halved, while the value of Solana has dropped by 65 percent.
The former head of crypto at Facebook-parent Meta, David Marcus, seems to accept that a crypto winter had already arrived. He remarked in a tweet on Monday:
“It’s during crypto winters that the best entrepreneurs build the better companies. This is the time again to focus on solving real problems vs pumping tokens.”
It’s during crypto winters that the best entrepreneurs build the better companies. This is the time again to focus on solving real problems vs. pumping tokens.
— David Marcus – dmarcus.eth (@davidmarcus) January 24, 2022
Rising Correlation between the stock market and Crypto markets
The S&P 500 has been down 8% since the beginning of the year, while the tech-centric Nasdaq is down more than 12%. Furthermore, the link between bitcoin’s performance and that of the S&P 500 has recently increased.
Traders are concerned that prospective interest rate rises and aggressive monetary tightening by the Federal Reserve may deplete market liquidity. The Federal Reserve of the United States is considering such moves in response to rising inflation, and some analysts believe it could signal the end of the era of ultra-low interest rates and sky-high valuations — particularly in high-growth sectors like technology, which benefits from lower rates because companies frequently borrow funds to invest in their businesses.