Will the Crypto Market Reach Rock Bottom During Crypto Winter?
Cryptocurrency is seeing massive downturns that began after it peaked in November 2021.
According to Coinmarketcap, the total market cap lost two-thirds of its value, falling from $3 trillion to below $1 trillion on June 13. Bitcoin (BTC) suffered a loss of 13.6% in 24 hours, dwindling to a level it hasn’t seen since December 2020. Ether (ETH) dropped 18% for the same period.
The state of cryptocurrency has led many companies to implement significant budget cuts, often in the form of massive layoffs, to survive the crash and face their financial woes.
CEO of Coinbase — Cutting Workforce
The CEO of Coinbase — one of the most well-known cryptocurrency exchange companies — announced on June 14 that it will cut its workforce by 18% effective June 30, citing the economic crisis and claiming the company grew “too quickly.”
Coinbase CEO Brian Armstrong attributes the recent downfall of crypto to the U.S. “entering a recession after a 10+ year economic boom” in a blog post sharing the message that was first sent to Coinbase employees on June 14.
Will the Recession Lead to Another Crypto Winter?
He added that a recession could lead to another “crypto winter,” a phenomenon that most likely got its name from the popular — and now notorious for its dismal final season — HBO series, “Game of Thrones.” In the series, “winter is coming” is a motto signifying that lasting danger and conflict could arrive at the kingdom at any time and without any warning.
Will Crypto fail or thrive?
This is an adequate metaphor to describe a cryptocurrency crash, as crypto’s volatility and risk mean it has the potential to fail — or thrive — at any time. During a crypto winter, trading revenue declines significantly and remains low for an extended period — usually a massive drop after a huge peak.
Coinbase isn’t the only platform to announce recent layoffs during a potential crypto crash. Gemini confirmed the dismissal of around 10% of its staff as well. In the announcement shared with employees, which was later posted to its blog, Gemini CEO and President Tyler and Cameron Winklevoss say, “… as painful as this moment is, we ultimately see it as an opportunity to double-down on our strongest ideas and customer-centric products.”
Previous Crypto Crashes and Causes
The last crypto winter lasted from January 2018 until December 2020 and began with a Bitcoin crash.
Many causes, national and international, can spur a crypto winter. In the U.S., increased inflation rates drive rising interest rates, which drastically impact crypto in potentially its biggest market. Global events, such as the Russia-Ukraine conflict, cause turmoil in finance and affect the world of crypto as well.
Crypto winter is problematic for investors and businesses
Crypto winter is problematic for investors and businesses, but especially for newcomers who are unsure of what their next move should be or if they should continue investing and trading at all.
Experienced traders are making recommendations on social media platforms like Reddit and Twitter, encouraging traders first to figure out what they’re willing to lose. The co-founder of CoinGecko, Bobby Ong, even encouraged longtime holders of Bitcoin and Ether to step away to “go for a jog, cycle, hike,” saying, “the market will still be here.”
Regardless of a person’s role in the cryptocurrency crash, the current state of the market is unsettling. However, there are a few advantages to a crypto winter.
Advantages of a Crypto Winter
Even though this crypto winter is not a welcome change, it’s certainly not the first time investors have experienced it.
A crypto winter allows more established companies to prove their products to the public while weeding out new startups with unsustainable models. It’s an ideal time for investors to easily identify the best places to put their money.
An incredible growth period following the last crypto winter persisted throughout most of 2021. There’s no way to tell if things will trend that way this time around, but many investors think sticking it out will be worth the risk.
Newcomers During the Crypto Winter
Some investors see the current state of the market as one more reason to “double-down” and stick it out for long-term results.
Still, for many, joining the crypto world now seems like a move that’s guaranteed to fail. However, there have been a lot of updates in the crypto world involving analyzing the risks associated with it. It’s hard to know much about what will happen, but a few things are certain.
Crypto is becoming more regulated.
Yes, Crypto is becoming more regulated. The U.S. government, after an executive order signed by President Joe Biden, will more closely regulate the risks and benefits of cryptocurrencies in terms of six factors: consumer protection, financial stability, illicit activity, U.S. competitiveness, financial inclusion, and responsible innovation.
Crypto is also becoming more mainstream, with various businesses open to accepting crypto as a form of payment.
Where’s the backlash?
More regulation brings backlash, but it also means crypto is becoming more legitimized, which could offer some peace of mind for new traders.
However, accessing the crypto market is not always a good thing. Cryptocurrency is full of risk, meaning traders need to understand the possible consequences they might face by joining.
Where’s the risk in Crypto?
It’s easy to see the risk involved in crypto now, but when the market is doing well — like it might be once this crypto winter thaws — seeing them will be more difficult.
People that are new to crypto or interested in doing some trading must do their research to gain as much knowledge as possible before investing. They must focus on possible losses first and foremost so they stay focused on realistic goals. Once they develop a financial strategy based on the information they gather, they should stick to it.
Finally, don’t get stuck thinking crypto is the same as other markets. It’s not. It will be more advantageous to make smart trading decisions rather than buy and hold stocks like in a more classic market.
The Future of Crypto
It’s difficult to predict the future of crypto. It’s essentially impossible to make forecasts, given the volatile state of the economy. That’s what Binance CEO Brian Shroder says is the beauty of crypto: “It literally ends next week, or we could be in it for over a year-plus.” The company made headlines recently when it deferred from the layoff trend, hiring 2,000 open roles on June 15, the day after Coinbase announced its layoffs.
The Stronger Cryptos Will Stay Afloat
Most experts seem to agree that the stronger cryptos will stay afloat. Some are banking on cryptocurrency getting a revival once the economic crisis subsides and are using the crypto winter as an opportunity to purchase Bitcoin at a discount.
Investors must decide if they want to ride the wave with established companies and longtime investors or hop off now. As with everything in investing, people need to do their homework, follow their gut feelings, and hope for the best.
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