It is not a good time to be a crypto dude right now (or sis). Not only was that person’s apes taken, and you are probably being outperformed right now by a hamster, but if traders are to be believed, things are about to go full Game of Thrones. Briefly, winter is on its way. WHAT IS THE DEFINITION OF A CRYPTO WINTER? Speculators are concerned. According to Business Insider, Invesco global head of asset allocation Paul Jackson stated in a note earlier this month, “The mass marketing of bitcoin reminds us of the behavior of stockbrokers in the run-up to the 1929 crash.” “We don’t think it’s a stretch to think bitcoin will fall below $30,000 this year.”
Similar pessimism led investment firm UBS to predict an impending “crypto winter” — a period in which the value of cryptocurrencies such as Bitcoin plummets and fails to recover. It has happened: in December 2017, the price of Bitcoin dropped from about $20,000 to around $3,400.
WHY DO PEOPLE BELIEVE A CRYPTO WINTER IS ON THE WAY? There are a few red flags to be aware. One Bitcoin was worth more than $69,000 in November, but by this weekend, it was only worth roughly $35,000 — a drop of over half, and dangerously close to the apparently “critical” $30,000 level.
In fact, during the weekend, the cryptocurrency market as a whole lost about $130 billion in value — and those kinds of numbers terrify investors. As high-risk assets, digital currencies are typically the first to sell off when markets panic – and with interest rates increasing and stock markets plunging, it appears that speculators are beginning to hedge their bets. Cryptocurrencies have also been hit by a string of legislative setbacks, with governments all over the world getting closer to outlawing them in recent months.
According to UBS analysts, cryptocurrency speculation “inevitably attracts more monitoring to safeguard consumers [and] protect financial stability,” and the various digital currencies “seem almost certain to face bigger setbacks from regulators in the coming months.” In addition, it might send crypto prices falling, as they did in the aftermath of the recent crypto bans in Russia and China.
IS THERE REALLY A CRYPTO WINTER ON THE WAY? It is difficult to say. Cryptocurrency prices are notoriously volatile, fluctuating wildly based on events such as a billionaire’s tweet or the latest hit TV show. Moreover, when crypto prices change, they change dramatically:
“Bitcoin corrections typically range from 30 to 50 percent, which is where we are now, so we’re still in normal correction zone,” Vijay Ayyar, vice president of business development and international at crypto exchange Luno, told CNBC. That is perhaps why many crypto specialists are predicting a “cooling off” or, as Ayyar puts it, a “correction” period. Digital currencies have experienced massive growth over the last twelve months, with patterns of rapid increase followed by drops of 80 percent or more being common, according to Ayyar.
“A lot of developers seem to have been distracted by the easy gains from speculation in NFTs (non-fungible tokens) and other digital assets over the last year – especially with all the hype in this market,” Nadya Ivanova, chief operating officer at BNP Paribas-affiliated tech research firm L’Atelier, told CNBC. “A cooling-off period could be an opportunity to start building the market’s fundamentals.”
