The Crypto Winter: A Frostbitten Market and the Promise of Spring

The crypto winter has come. More accurately, it has been here since early May when Bitcoin and a whole host of altcoins fell drastically. Bitcoin is struggling not to fall below the $20,000 threshold — an almost 70% drop from its record high. The same goes for Ethereum which is staying afloat at $1,209, at the time of writing. Now, more than ever, crypto firms and enthusiasts are fearing for the current state of the nascent industry. There are two primary factors that brought the crypto world to these circumstances: (1) macroeconomic troubles and (2) geopolitical turmoil. From there, the dominoes just keep tumbling down the line.

“This is where we are now, in the contraction phase that is settling into a period of stasis—what our industry refers to as ‘crypto winter,'” explained crypto exchange Gemini co-founders Tyler and Cameron Winkelvoss. The nascent industry has gone through various peaks and valleys throughout the years. It has experienced its fair share of bear and bull markets. But, co-head of trading at Galaxy Digital Holdings Ltd. Jason Urban put it succinctly when he said: “It’s got a different flavor this time.” What sets this particular situation apart is the crypto market’s continued expansion and widespread adoption. Hence, there is more at stake for investors now than ever before.

When Crypto Froze Over

“The crypto market was already feeling the effect of world events, especially the Russia-Ukraine conflict that caused turmoil in global finance,” furthered crypto project DBX Digital Ecosystem CEO Igor Zakharov. In May Terra’s Luna coin, which was once worth over $40 billion, catastrophically dropped in valuation just a week after its stablecoin TerraUSD also broke its dollar peg. “By the time TerraUSD and Luna collapsed and set in motion a domino effect in the crypto world, crypto winter had already begun,” he added, noting that interest rates in the U.S. — among the biggest crypto players in the world — rose significantly in light of high inflation and, therefore, plunging crypto prices.

The Big Chill

In November 2021, the crypto market had a market capitalization above $3 trillion. Since then, it has plummeted to around $970 billion at the time of writing. This, in turn, led to a lot of panic-selling from investors. Just last month, crypto outflows amounted to $423 million based on data from crypto asset management firm CoinShares. Of course, crypto funds aren’t the only casualties of this crypto winter. The blizzard also obscures the future of certain firms — both big and small — while their employees are caught in the storm. Some have already filed for bankruptcy, while others are exploring restructuring options amidst the circumstances.

Over the past week, Gemini announced its plan to cut around 10% of its workforce. Other exchanges including Crypto.com and BlockFi are following suit, laying off 5% and 20% of their employees, respectively.”If the market remains in contraction for long enough, it is not only poor companies that will suffer—but some great ones too,” explained Jake Weiner, founder and CEO of crypto hedge fund Uncommon. “The good news for those companies is that, unlike past crypto winters, a lot of crypto [venture capitalists] have already amassed war chests that they will continue to deploy.”

Springtime Optimism

As seasons change, so too do market conditions. Despite the current circumstances, the Bank of America (BAC) affirmed that investor interest is still very much blanketed in warmth. This is highlighted in the BAC’s report following its “Web3 & Digital Assets Day” conference held late last month. “Blockchain technology and the digital asset ecosystem are here to stay,” noted the report. “Client engagement continues to grow and focus remains on the rapid development and disruptive nature of blockchain technology, despite falling token prices and headlines suggesting the ecosystem’s demise has arrived,” it added.

“This is necessary for any financial market to mature and evolve,” furthered Wave Financial partner Matteo Dante Perruccio regarding the crypto winter. Other crypto enthusiasts share similar sentiments. Among them is prominent American Rapper Snoop Dogg, who has been very vocal about his plans surrounding Web3. Snoop has even released an NFT collection of his own dubbed “Journey of the Dogg.” Earlier this year, he also announced his plan to record label Death Row Records into an NFT label. The rapper is no stranger to being an early investor in up-and-coming firms and industries. With this, he understands the trials that crypto is currently enduring.

Thawing The Ice

“I feel like every great industry has a downfall. There’s been a depression in every industry you can look at … alcohol, tobacco, clothing, food; every industry you can imagine,” Snoop asserted. Yet, he also believes that the crypto winter is just as much an ordeal that will eventually bring about a positive outcome. “This [crypto winter] weeded out all the people who weren’t supposed to be in the space and who were abusing the opportunities that were there,” the rapper added. “Now it’s going to bring on great business, and moving forward, when the market comes back, there will only be great things to pick and choose from.”

Much like Snoop Dogg, those who stick by the industry believe that crypto will bounce back stronger. They this as an opportunity to batten the hatches in hopes of reaping the rewards in the long term.” Abigail Johnson, CEO at financial services firm Fidelity Investments, is among those individuals. “This is my third crypto winter. There’s been plenty of ups and downs, but I see that as an opportunity,” said Johnson. “I was raised to be a contrarian thinker, and so I have this knee-jerk reaction: If you believe that the fundamentals of a long-term case are really strong, when everybody else is dipping [out], that’s the time to double down and go extra hard into it.”

Throw Logs Into The Fire

Nonetheless, the crypto winter rages on. It has buried countless coins, firms, projects, and employees under mountains of snow. But, unfortunate as it may seem, spring will come eventually. However, whether it’s sooner rather than later; that still remains to be seen. For now, perhaps the best course of action is to take in the warmth of the fireplace and see where the nascent crypto industry will go from here.

References: Forbes Advisor, Bloomberg, CNBC, CoinDesk, Forbes