If we see the value of every significant crypto in the first half of 2022, they have consistently dropped. A handful of crypto-related companies are facing severe financial difficulties, including bankruptcy. This period of market cooling has become known as “crypto winter.”
Contrary to expressions like “market correction” or “bear market,” crypto winter lacks a clear definition.
That is obvious that we have crossed the threshold, wherever it may be. This is why:
- The drop in value was steep: The market capitalization of the top 100 cryptocurrencies on July 24, 2022, was $1 trillion, so the decline in value was significant. From a market valuation of $2.7 trillion on November 7, 2021, that represents a 62% decline.
- The decline was widespread and is still occurring today: As of July 24, 2022, the value of the top 100 cryptos is lower than it was nine months earlier.
Impact of crypto winter on startups and young companies
A crypto winter has previously descended over the market; this is not the first time.
From January 2018 through December 2020, the crypto winter persisted. The phrase most likely first appeared in 2018 when other cryptos, including Ethereum and Litecoin (LTC), as well as Bitcoin, saw a market cap loss of more than 50%.
From that experience, we know that the crypto winter resembles a traditional bear market and that the outcomes aren’t all that unlike those of bear markets in other asset classes. Long-term crypto winters eliminate inexperienced startups and provide leading enterprises a chance to develop and validate their offerings.
If the market continues contracting for long enough, some excellent firms will suffer from the weaker ones. However, contrary to previous crypto winters, many cryptos [venture capitalists] have already accumulated war chests that they will continue to use, which is fantastic news for those companies.
After the crypto winter broke in late 2020, much of 2021 saw a time of phenomenal growth.
How can you survive this phase?
In this extended time of market volatility, it’s important to remember that dips are a unique feature of investing. With the assistance of the following advice, you can deal with these circumstances:
- Do not invest money that you cannot afford to lose.
- Create a plan for sustaining the bear market, such as DCA or dollar cost averaging.
- It is vital to maintain stability and refrain from panic selling.
- Typically, bear markets move quickly and furiously.
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How is this crypto winter different from the previous ones?
In the middle of the bull market in traditional finance, Bitcoin’s price fell by more than 50% from its all-time high in 2018, ushering in the most recent crypto winter.
What has changed from then to now?
According to a market strategist, “this is the first time we actually see crypto trade lower [than previously] in a regular bear market. The bear market might make a crypto rebound more difficult.
With the growth of crypto, the confluence with fundamentals and the traditional financial market has become increasingly sensitive. The present decline in crypto prices is not unique to cryptos; instead, it is a result of a global sell-off affecting almost all asset classes.
Will crypto come back stronger?
Most experts agree that “stronger cryptos” will win when predicting the future of the crypto industry.
But some claim that speculators control Bitcoin and other cryptos. So nobody should think of purchasing Bitcoin or any other crypto as an investment on the same level as buying stocks and commodities.
Though some investors still adore the pullback, they see it as an opportunity to increase their long-term bets on the market. Moreover, they are counting on a crypto resurrection once the worldwide political and economic crisis has passed.
Winters in the crypto market might be depressing but bear in mind that bull markets also follow bear markets. The stock market’s prices have continually risen throughout history, as seen. Cryptos can be quite volatile, but this sector has always bounced back and done exceptionally well. Because of this, research is essential before making investing selections. As a long-term investor, adhering to SIP or DCA can assist you in obtaining higher risk-adjusted returns during these periods.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.