Why Do People Think A "Crypto Winter" Is Coming?

Looks like some crypto assets are about to get ................ frozen. Thank you we'll be here all week. Image: Mike_O/Shutterstock

Oof. It’s a bad time to be a crypto bro (or sis). Not only did that guy get all his apes stolen; not only are you most likely being outperformed by a hamster right now; but if traders are to be believed, things are about to go full Game of Thrones. In short: Winter is Coming.

What is a crypto winter?

Investors are worried. “The mass marketing of bitcoin reminds us of the activity of stockbrokers in the run-up to the 1929 crash,” Invesco global head of asset allocation Paul Jackson wrote in a note earlier this month, Business Insider reported. “We think it is not too much of a stretch to imagine bitcoin falling below $30,000 this year.”

Similarly pessimistic views prompted investment bank UBS to warn of a “crypto Winter” incoming – a period of time when the value of cryptocurrencies such as Bitcoin slump and fail to recover.

It’s happened before: at the end of 2017, the price of Bitcoin fell from about $20,000 to around $3,400 by December 2018.

Why do people think a crypto winter is coming?

There are a few worrying signs. Back in November, one Bitcoin would set you back more than $69,000, but last weekend the same amount was valued at just around $35,000 – a decrease of nearly half, and perilously close to the supposedly “critical” $30,000 level.

In fact, the cryptocurrency market as a whole had around $130 billion wiped off its value in 24 hours over the weekend – and those are the kind of numbers which scare investors. Digital currencies are high-risk assets, which makes them among the first to be sold off when markets panic – and with interest rates rising and stock markets falling, it seems speculators are starting to hedge their bets.

Cryptocurrencies have also suffered a slew of regulatory setbacks as governments across the world have been edging ever closer to banning them recently. Speculation on crypto “inevitably invites closer oversight to guard consumers [and] protect financial stability,” according to UBS analysts, and the various digital currencies “seem almost sure to face bigger setbacks from authorities in the coming months.”

And that could send crypto prices tumbling – as indeed they did in the wake of Russia’s and China’s recent crypto bans.

Is there really going to be a crypto winter?

Well, it’s hard to say. Crypto prices are notoriously bananas, hinging on things like a billionaire’s tweet or whatever TV show has currently taken the world by storm. And when crypto prices move, they move big: “Corrections for [Bitcoin] usually are in the 30-50 percent range, which is where we are currently, so still within normal correction territory,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC.

That’s probably why many crypto experts are talking about a “cooling off,” or, like Ayyar, a period of “correction.” The digital currencies have seen a huge growth over the past twelve months, and patterns of fast growth followed by dips of 80 percent or more are fairly typical for the digital currencies, Ayyar pointed out.

“Over the last year – especially with all the hype in this market – a lot of developers seem to have been distracted by the easy gains from speculation in NFTs (non-fungible tokens) and other digital assets,” Nadya Ivanova, chief operating officer at the BNP Paribas-affiliated tech research firm L’Atelier, told CNBC. “A cooling off period might actually be an opportunity to start building the fundamentals of the market.”

Should I be worried about a crypto winter?

If you’ve only recently dipped a toe into the world of digital currency, it’s likely that seeing your portfolio tumble in the past few days might have left you panicking slightly. But it’s unlikely to shake the resolve of any crypto true believers out there – not least because of the digital assets’ infamous unpredictability.

“Last year, we spoke of Bitcoin falling below $10,000,” Jackson’s note pointed out. “[I]nstead it reached a peak of around $68,000.”

All “explainer” articles are confirmed by fact checkers to be correct at time of publishing. Text, images, and links may be edited, removed, or added to at a later date to keep information current.

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