The cryptocurrency market again fell below $1 trillion, valued at $997 billion at last check.
Bitcoin, the king of crypto coins, is below the symbolic threshold of $20,000 for the first time since July 14.
The fear that dominated the markets in May, June and early July is back. Investors figure that the economy could slide into recession as the Federal Reserve aggressively hikes interest rates to fight inflation, which is at its highest in 40 years.
These fears have only intensified the volatility in the cryptocurrency market. From the beginning, the cryptocurrency market has seen bull runs, even euphoria, often followed by equally strong downward movements. And when the dips last for a good period, we speak of crypto winter setting in.
There have been several episodes since the advent of bitcoin in 2009. But initially we were talking mainly about crypto bubbles bursting than about crypto winter. Let’s look at the two longest most important crypto winter periods.
January 2014 to February 2017
On Jan. 6, 2014, bitcoin was trading around $1,000. The next day prices fell and did not recover until Feb. 2, 2017. This crypto winter, lasting nearly 37 months, was caused by the Mt. Gox scandal, which tarnished the crypto industry’s image for a long time.
Mt. Gox, one of the oldest and largest bitcoin exchanges, disappeared in February 2014. A few days after several security breaches, the firm suspended withdrawals, resulting in the loss of nearly 850,000 bitcoins. Many holders of those bitcoins still have still not recovered their money.
During this crypto winter, bitcoin’s price had fallen as low as $210, a drop of about 79%, according to data from CoinGecko.
Bitcoin’s price rebounded and broke above the $1,000 threshold on Feb. 2, 2017, reaching $1,015.44. Unlike the bursting of the crypto bubble in 2011, in 2014 there was less talk about the impending death of bitcoin.
January 2018 to Mid-December 2020
This crypto winter lasted almost three years.
Bitcoin rose more than ninefold, to $19,000 from $2,000, between July 2017 and mid-December 2017. On July 17, the price touched the symbolic threshold of $20,000.
But from January 2018 came the collapse. In a matter of days the price went to $10,000. They fell to around $3,400 in December 2018, a more than 80% drop in not quite a year.
The bull run had been fueled by retail investors finally starting to open their arms, and wallets, to bitcoin. Crypto was all the rage. Bitcoin was everywhere, in conversations in town, at parties with friends, at work.
This was also the era of the first crypto millionaires, who talked about retiring before they turned 30. But when these early investors started cashing out their bitcoins, prices crashed.
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Bitcoin returned to the $20,000 level in December 2020.
Meantime, ether rose from $9 in January 2017 to $1,000 in January 2018, according to CoinGecko. That was an extraordinary rise for the No. 2 cryptocurrency by market capitalization.
But ether prices then dropped to $87 in mid-December 2018. And they would not return to around $1,000 until Jan. 3, 2021.
2022 and … September
Bitcoin has fallen more than 71% since hitting a record $69,044.77 on Nov. 10, 2021.
Ether has lost more than 70% of its value compared with its all-time high of $4,878.26, set the same date.
At last check bitcoin was trading at $19,864.76 and ether at $1,451.49.
This period of falling prices is barely 10 months in; investors’ pain is immense. At this rate of decline, if the current crypto winter were to last three years, investors would risk losing everything.
The current crypto winter is certainly due to fears of a possible recession on the horizon but also to problems inherent in the crypto industry.
The biggest of these issues is the lack of transparency, which has resulted in prominent crypto lenders not disclosing information that they were mostly lending money to the same hedge fund, Three Arrows Capital or 3AC.
The difficulties of this hedge fund have reverberated in the sector, causing a liquidity crisis: Crypto lenders Voyager Digital and Celsius Network have filed for Chapter 11 bankruptcy.
It is also the lack of transparency that caused investors to panic and simultaneously withdraw their money in sister cryptocurrencies Luna and UST, triggering a devastating domino effect for several players in the sector.
But the current situation of cryptocurrencies also suggests a tighter correlation with the stock market. This means that investors buying the dip in the stock market could also do so for cryptocurrencies.
Main Street also knows the coins a little better, which is likely to persuade other retail investors to return to the market much earlier than expected.
But keep in mind: September is one of the worst in terms of return on investment for crypto investors, as pointed out by coinglass.com here.