In this article, you will learn what is crypto winter. If you have ever watched the HBO series Game of Thrones, you will know the words “Winter is Coming” meaning a hard time is coming to you. In the crypto world, there is a term that is similar to it commonly associated with the prices of cryptocurrencies.
What is Crypto Winter?
Crypto winter is the literal season of discontent for the cryptocurrency market. It's a term that is loosely based on the concept of 'Winter is Coming' from the HBO series Game of Thrones, whereby winter is a time of challenge and conflict. The period of Negative gains in the value of cryptocurrency are commonly referred to as crypto winter.
Unlike in the traditional capital markets, in the cryptocurrency market, there is no specific metric by which a crypto winter occurs. A crypto winter is not declared by any one regulatory authority or entity. Rather it is a general situation where exchanges and investors alike see continued declines over a period. The declines in a crypto winter are typically over multiple cryptocurrencies and for a period of at least three months.
Crypto winter isn't just about lower values for cryptocurrency assets; it's also about lower overall trading volume over a period.
Is a Crypto Winter Coming?
Crypto winter is a term that's making the rounds again as the global crypto market has shed $1.2 trillion in the last three months. It wasn't until mid-2019 that the crypto markets showed signs of recovery – bolstered by record investmentins from institutional Trade tensions escalating between the US and China encouraging investors to seek out economic hedge assets.
While things are certainly different now, that hasn't stopped rumors circulating that another winter could be around the corner.
- The crypto market then and now
Since the market has only experienced a single crypto winter in its history, one way to discern whether another winter is coming or not is to draw comparisons between the market back then and now.
By comparison, the current global crypto market capitalization has decreased 48% over the last 75 days. Finally, taking into consideration that bitcoin plunged 84% before hitting bottom during the first crypto winter, it would mean that bitcoin's current bottom price to would need out around $11.000 to reflect the same percentage loss.
This is, of course, a rough estimation for gauge where the current market stacks up against itself previously during the last crypto winter and should not be construed as concretely confirming or denying a new bearish cycle has started.
-The mythical four-year crypto cycle
There's a growing belief the crypto market (in more recent years) follows a pattern of rising and falling in price every four years. Whether this is the result of a self-fulfilling prophecy or not is difficult to say, however, many tie this theory to the timing of Bitcoin halving events, which occur roughly every four years (more specifically, every 210.000 blocks). This changes the dynamic of the market and ushers in a new market cycle – or so the story goes.
- Exacerbating macroeconomic factors
Financial markets worldwide have been rocked by the first global pandemic crisis since 1918. The Federal Reserve is expected to hike interest rates for the first time in three years and inflation has reached levels in many countries not seen in decades.
It's entirely possible these events could curtail the frivolous investing we've seen from institutional and retail crypto investors alike over the last year, as borrowing becomes more expensive, and therefore less attractive, while the cost of living rises. The cooler climate is necessary to initiate another winter in the crypto market.
Bottom Line
It is always important to understand the difference between sell-offs, crashes and crypto winters. So, this article explains about what is crypto winter.
