Crypto Winter has arrived – Here’s what you must know

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The sudden fall of Crypto is a huge shock for all crypto investors. And how could it not? Such a might fall it is, after all! With a whopping 70% decline in the crypto value, wheels have been set in motion, and the cogs in wheels have started losing control. 

Yes, I am talking about employees. 

Even huge firms like Coinbase have eliminated 18% of the entire workforce. [1]

Woah, that’s deadly!

Well, “Deadlier”

And I fear this can be painful to all your deep “investment aspirations.”

Sorry for putting a full stop to all your immediate plans to invest in Ethereum

But, this winter effect is not only limited to conventional Bitcoins but has spread its pawns on other robust cryptocurrencies, including Ethereum and Polygon. 

Oh no! This crypto winter is ominous. What the heck is it?

What is Crypto Winter? 

Well! This ominous word has been taken from something we paradoxically refer to as exciting. A movie it is. Any guesses? 

It is the famous HBO series “Game of Thrones.” If you have closely followed the series, which I am sure you have – you must have heard the phrase “Winter is coming.” This phrase symbolizes lasting conflict and is used in Crypto to indicate a lasting downfall and a period of lower cryptocurrency prices. 

This definition is in sync with the price of Bitcoin falling to $21,105, with Crypto standing at less than 1 trillion. 

Oh! This downfall is exacerbating my distress. Why such a long-lasting downfall! 

The answer to it, according to experts, is the confluence of various factors coming into play. The waves of crypto winter seemingly disquieting right now started way before in early 2022. 

According to experts, Crypto Winter characterizes an interplay between cryptocurrency and stock markets. And, it is not a hidden fact that the capital markets have seen their all-time worst in 2022. [2]

But, wait! 

These are just a few of the headwinds acting together. 

There is more to this scary might!

Reasons behind the big fall 

Well! There are many reasons behind the fall—some obvious and some based on recent developments. 

What are they? Let us discuss. 

The Russia-Ukraine war 

The Russia-Ukraine war was a massive shocker to the commodity prices—something beyond the control of even the world’s leading economies. 

Since Russia has been leading the oil imports, we saw a sudden price surge of essential commodities with an outcry over petrol rates reaching an all-time high. [3]

The immediate economic sanctions on Russia by the U.S and Europe seemed to worsen the situation – Adding to the woes of both general consumers and crypto lovers. Quite literally. 

All of this in the Russia- Ukraine context combinedly created a huge supply and demand gap – leading to an all-time high inflation. 

What! But wasn’t Crypto designed to protect us against inflation of all kinds? 

Sorry to have disappointed you. But no! Not all kinds. 

I know Crypto has been a welcome step to act as a hedge against Inflation, But recent data have something else to suggest. 

Firstly, this inflation wasn’t country-specific but was visible across the globe, including in the U.S, Europe, and other countries. So, let us not push our expectations beyond what Crypto can offer

Secondly, how Crypto reacts to inflation also depends upon the variation of crypto pricing over time. But we saw Bitcoin’s value decreasing in 2021, twice what caught up with consumers’ heating prices. [4]

This twofold reason may have convinced you not to use Crypto as an all-time savior to your drowning boat. 

Next on the list is inflation’s aftereffect. 

Inflation and Liquidity Crunch. 

What is this high-flying word? 

This term refers to a time when there is a significant gap between the supply and demand of cash resources – urging governments to charge higher interest rates to businesses and consumers. 

The surge in interest rates is the one reason behind spoiling all your plans to invest in cryptocurrency – as the huge cost of borrowing assets is discouraging enough to push investors away from riskier assets like cryptocurrency. 

Or even when they wish to invest against all odds, regulation won’t let that happen. Let us see how. 

Regulatory Challenges 

India has always topped the list regarding poor regulation for Crypto. But, the tables have turned with Russia not allowing a single crypto transaction along with a screeching halt on mining. Russia describes this move as a protection against threats in the cryptocurrency – posing transactional autonomy. [5]

India, too, is not in the right place when it comes to regulation. A whopping 30% taxes and a 1% TDA have furthered the peril of inflation-induced interest rates. 

Hmm, all of these are pushing difficulties from the sidelines. 

But didn’t most of the above-discussed reasons exist ever since the time we started using Crypto? 

What makes “Crypto Winter” so different this time. 

Of course, you hit the right chord. Let me acquaint you with the mega spoiler of the bitcoin game! 

It’s the collapse of Terra

Shocking, is it? It is the second-largest DEFI ecosystem, after all. Or shall I use “was”? 

We have seen the Crypto business and investors recouping from a period of inflation. But, a strong ecosystem like Terra always had its back. 

What made Terra so special? 

Well! It was something we all love – Stablecoins. 

The creators of this company, established in 2018, chose stable coins to sustain high volatile periods of cryptocurrency. Widely known for its stable exchange rate, we saw Terra growing a humungous pool of networks in just a short period. [6]

But, “Hyperinflation” ate it up all. With lakhs of investors relying on Terra as a constant in times of volatility have nowhere else to go now. 

Such a mighty fall! 

What will happen now? 

Most certainly, it will be a long-lasting consequence across multiple domains. 

Let us discuss the long-term implications

Though there are many, let us start with the most immediate one. 

A drastic drop in the number of users

The new industry is expected to bear s strong “Bear Market Crash.” With Bank of America reporting a 50% drop in the number of crypto users, the situation seems to be worsening. 

It is shocking that around 21-30% of them developed negative sentiments regarding cryptocurrency and don’t plan to invest any time soon. [7]

Though analysts predict the increase in some investors after the winter period, commenting on anything now would be a little sooner. 

Whatever the case, the decline in investors has already cascaded through the business and industry in general. 

Fall of Crypto Companies 

The companies saw an overvaluation over the last two years with the surge in Crypto prices. And what’s next? 

They went crazy with the hiring spree. 

But now, the global industry worth billions of dollars is crashing down. 

The value of even leading startups like Robinhood and Terraform labs are facing their all-time low – with a massive downfall of 50% [8]

The most devastating is the sudden layoff of employees accustomed to a Crypto atmosphere who may find it difficult to sustain elsewhere. 

And can we sustain an all-time high Crypto Exchange Struggle?

The major cash exchange struggle 

With a continuous drop in crypto value, no company is ready at this point to offer equivalent cash against your Crypto asset. The lack of cash exchange has made the situation even more dreary, with the volume margin of cash exchange dropping at a 50-60% rate. [9]

It has made traders and investors across the globe either hold on to their stocks or never plan to get one. 

That’s it? What about my dreams of getting into the list of Crypto millionaires? 

I know this may sound shattering! 

But…….

With a heavy wave on Crypto, the shaky foundations on which they have been built are now becoming visible.

But I don’t wish to drown! 

Well! Then read the savior guide. 

What can you do to stay in a safe space? 

If we were to mention one feature that perfectly describes Crypto – It would be volatility. 

Since its widespread use, Crypto has always been subjected to odds ranging from inflation to unhealthy regulation. And finally, I realized that we are not capable of using Crypto’s exclusive features, which it was designed for. 

In short, we could not ride Crypto without falling – badly. So at least to ensure it doesn’t ride upon us – let’s get into a safe space. 

At your disposal, Here we present a few safety tips: 

1. Refrain from spot trading – Spot trading refers to a market where you can immediately sell and buy your assets. [10]  

Reasons, why you must refrain from spot trading are two-fold. Firstly, Spot trade’s  immediate gains are much lower than long-term future returns. Especially in Winter,      you will likely see spot trading getting prevalent. But, hold your hard-earned money/asset with yourself and wait for the Winter to abate.  

Secondly, spot markets usually leave you with assets you cannot make good use of.  So, better be wary about investing in spot trading than losing it all, only to realize you  end up getting nothing. 

 

2. Research is the key – Given how crazy volatile the market can get – It is always best to make informed decisions. So, research the coin/currency you invest your money in, which will help you survive a bear crash.

  •  For example – Choosing stable coins like Tether or Binance will ensure you don’t  spend your nights getting anxious over a massive Bear Crash. 

 

3. Use only your disposable income – I know, reading some success stories of Crypto millionaires may drive you crazy – enough to push you into an endless cycle of “more.”

So, before spending all your savings on a shoddy dream, step back, and take a step forward, but wisely! – By using only your “Disposable Income.

 

4.Save for better times – In a mega winter fall like this, you often see businesses coming up with short-term “Market Rebounds.” After a period of recession, it may appear tempting enough for investment. But save for better times. That would bring sustained growth and a better return on investment. 

In short, we don’t want you to tether around the edges after a humungous loss. So, Beware and act wisely! 

Is there a silver lining despite all odds? 

If we believe Jake Weiner, founder and CEO of Uncommon, success after Crypto Winter is possible. [11]

According to him, one thing that this Winter surely did was expose the vulnerabilities and shaky foundation of Crypto based startups. So, in the long run, it is likely that we see this downfall as an opportunity for many mature companies – that were lost under the influence of young startups to prove their mettle. 

Some are even optimistic about regulations falling in place, with countries realizing the potential of Crypto and the need to regulate the industry for consistent growth – through establishing local mining and other regulatory measures. 

In short, “When everyone else will easily be dipping out, that is the time to double down.”
It will be interesting to witness whether this Winter results in an outright refrainment from Crypto or a long-lasting indulgence through innovation. 
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She is a National level Debater with many accolades and as an aspiring journalist, she aims to present and document content in a well rounded and constructive manner.

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