What is crypto winter. Is it really over?

(Last Updated On: November 1, 2023)

In recent years, the term “Crypto Winter” has gained prominence within the world of digital currencies and blockchain technology. In this article we’ll try to demystify the concept, exploring its origins, significance, and impact on the cryptocurrency market. Join us as we delve into the icy depths of Crypto Winter, uncovering the challenges it presents and the potential opportunities.

Crypto winter

‘Winter is coming’ or ‘What is Crypto Winter?’

‘Crypto winter’ is a term that loosely refers to the concept of ‘Winter is Coming’ in Game of Thrones, where winter is a time of conflict and challenge.

The time frame of decreased profits in the cryptocurrency market is often known as crypto winter 2022. The year 2022 saw a significant drop in the value of popular digital currencies, which was caused by a string of noteworthy incidents. These included the downfall of several stablecoins like TerraUSD and Luna in May, as well as the failure of FTX in November. The persistent worries about security and possible government intervention further contributed to investor apprehension. The overall economic climate, with concerns over inflation and recession, also added to the turbulent state of the cryptocurrency industry.

What Caused Crypto crisis?

The winter of 2022 saw a decline in crypto markets, sparked by high U.S. inflation and subsequent interest rate hikes by the Federal Reserve. This caused investors to sell off risky assets like cryptocurrencies and stocks. As prices fell, it was revealed that many crypto lenders, exchanges, and hedge funds were over-leveraged. 

The downfall began with the collapse of Luna and TerraUSD in May 2022, leading to Three Arrows Capital’s demise and a loss of $42 billion for investors. This trend continued when Voyager Digital and Celsius Network declared bankruptcy protection in July 2022. In November of that year, liquidity problems and mismanagement brought down FTX, resulting in the arrest of founder Sam Bankman-Fried. With a previous valuation of $32 billion, this was a significant blow to the market. Just two weeks later, another crypto lender, BlockFi, also filed for bankruptcy.

Did crypto calamity affect 2023?

In March 2023, a combination of events caused runs on crypto banks Silvergate Bank and Signature Bank, leading to their ultimate failure. The surviving crypto companies were forced to make difficult decisions in order to weather the recent crypto winter, resulting in more than 20,000 job losses in 2022. 

This trend continued into the first quarter of 2023, with an estimated 2,400 additional jobs being cut. In January 2023, Coinbase announced its third round of job cuts, totaling 950 employees after previous layoffs in June 2022 and November. Similarly, London-based Luno had to let go of roughly 35% of its staff, amounting to 330 job cuts also in January 2023.

Positive takeaways of Crypto Winter for investors

A constant barrage of bankruptcies and negative headlines didn’t deter Bitcoin and other leading cryptocurrencies from holding up. In April 2023, Bitcoin rallied again, demonstrating the crypto’s resilience. As a result of a market downturn, the industry is also cleansed of its weakest links, such as mismanaged exchanges and lenders, nefarious actors, and companies with high balance sheets.

Is the Crypto Winter over?

A recent Morgan Stanley write-up to investors indicated that the upcoming Bitcoin halving and the imminent approval of a spot Bitcoin ETF are signals of a macro bull run in store. Morgan Stanley concluded that the crypto winter had ended, as it typically lasts 12 to 14 months after the previous bull rally peaked. According to the investment bank, “crypto winter” – bitcoin’s cyclical bear market decline – may be over.

The approval of a spot Bitcoin ETF in the United States is expected to open the floodgates of new cash flows into the crypto market in the subsequent months. Experts believe that the first Bitcoin ETF will be approved not if, but when, as the SEC has changed its stance on crypto dramatically and asked fund managers to amend their spot Bitcoin ETF applications.

In conclusion, after carefully analyzing the trends and developments in the cryptocurrency market, it is evident that the crypto winter is finally over. With numerous indicators pointing towards a significant recovery, such as the steady increase in adoption, regulatory advancements, and the resurgence of investor confidence, the future of cryptocurrencies appears promising.

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