The current situation in the market looks rather depressing. The Bitcoin rate dipped significantly and dragged the entire market with it. Traders are divided into two camps: some are selling assets in a panic, hoping to recoup at least part of the funds spent, while others are actively buying crypto “on the bottom”. The current fall of the market was expected, and it was preceded by a whole series of events. Today's correction was predicted by many experts and analysts, and now they boldly call this period a real crypto winter. At the same time, there are fears it will be longer and more severe than previous bearish cycles.
Igor Zakharov, CEO of DBX Digital Ecosystem, spoke in detail about what a crypto winter is and how the current protracted correction differs from the previous ones.
Understandably, the term “crypto winter” is taken because of the cold and reduced activity in winter. A crypto winter is a period when the prices of a cryptocurrency fall and remain low for a significant period. Signs of today's market clearly indicate a crypto winter. Bitcoin, the biggest player in the cryptocurrency game, has lost almost a third of its value from its all-time high. Its closest competitor, Ethereum, is down about 58% from its all-time high. And to top it off, the entire cryptocurrency market is now worth less than half of what it once was.
The current crypto winter had already begun long before the crash eventually started to make the news. Bitcoin was already trading at low prices at the beginning of the year. The cryptocurrency market had already felt the impact of world events, especially the Russian-Ukrainian conflict, which caused turmoil in global finance. Inflation had been high and the United States, the biggest player in cryptocurrencies, had been fighting it by raising interest rates. By the time Terra and Luna crashed and set off a domino effect in the crypto world, the crypto winter had already begun.
The expert adds,
“Recently, there have been news of layoffs and hiring suspensions by cryptocurrency companies such as Coinbase, Gemini, BitMEX, and others. While this is definitely a concern, it is worth noting this is not limited to the crypto world. A number of companies are also laying off employees. This points to the consequences of the current global economic conditions that crypto companies have not gotten rid of. If the market continues its current course or worsens, we may see more layoffs.
“Are crypto winters a good way to test the cryptocurrency market in order to identify bad and weak players? Probably so. The one thing that has made cryptocurrencies like Bitcoin and Ethereum reliable and trustworthy is the fact that they manage to bounce back when they experience falls. So crypto winters are, in a sense, a test of endurance for cryptocurrencies. Those which survive such falls have proven themselves to be reliable performers, while those which fail are considered weak and are weeded out.”
The expert emphasizes that this crypto winter is different from the previous ones. Cryptocurrency has grown to such an extent that the governments of the world are starting to interact with it and with blockchain technology. Investment and tech firms are so involved in cryptography that they can no longer simply abandon the investments and innovations they have made in cryptography. This level of acceptance indicates a return. Cryptocurrency will return, perhaps with more federal regulations and innovations.
Ivona Gutovich, COO of Green Crypto Processing, gave her assessment of the current situation and talked about what had led to the current situation on the market and whether everyone should be afraid of a protracted correction. She said,
“Crypto winter can drag on for a long time and you should be prepared for this. Hardly anyone still doubts that the explosive rally of cryptocurrencies was possible due to the huge amount of cheap liquidity that central banks poured onto the market. As soon as hints of imminent changes in the Fed's strategy began to appear, risky assets such as technology stocks and cryptocurrencies rushed down. These instruments no longer look attractive given the growth in rates and rising funding, and investors began to choose shares of the energy sector and risk-free assets.
“The problem is that there are no safe haven assets in the cryptocurrency market, so capital simply flows out of it into other industries. So to wait for rates near important levels in order to accumulate coins is the last thing that institutional investors will do now. In general, the popular theory that the arrival of funds in the cryptocurrency will protect digital assets from a deep correction was initially rather doubtful, because large players had always been closing positions on risky instruments as quickly as possible to maintain margin in more important sectors. In other words, the reasons for the initial growth of cryptocurrencies have now become the main driver of the decline in market capitalization.”
Should we be afraid of a long crypto winter?
You can call this situation whatever you like—crypto winter, correction, bearish cycle—this does not change the situation. We see the rates creeping down and crypto investors losing money every day. Now something else is more important. How long will all this last and should crypto enthusiasts expect a long crypto winter? We asked experts about that.
Vyacheslav Konovalenko, Founder and CEO of Syndicate Of Traders, suggests recalling the history of BTC. After a good rally in 2017, the rate was falling for exactly a year. The rates slowly slipped during this time, thereby squeezing "weak hands" out of the market. According to the expert, exactly the same thing is happening at the moment. There was a great rally in which the rate of the first cryptocurrency increased by 500%, which is an incredible amount. And of course, the cryptocurrency market, like any other, is subject to the same laws. After growth, there will always be a correction. And the stronger the growth, the deeper the correction can be. Since November 2021, we have already been in a down market for 9 months, which is quite a long time. It is expected that the market will begin its recovery no earlier than autumn–winter 2022.
Stanislav Pankov, head of TTM Academy, believes that the current crypto winter can last from one and a half to two or three years. Investors should always be prepared for the fact that their assets still can fall at least twice or even more. If we recall the 2018–2019 crypto winter, then many assets fell by more than 95% and did not show growth to their previous price highs.
The expert adds,
“I recently analyzed the global Bitcoin market cycle from May 2010 to June 2022 and found that Bitcoin had only had four local full up and down cycles. If we consider that a full-fledged cycle begins with a fall and ends with an increase, then we can get the following figures. The first cycle started with the advent of Bitcoin and there was no strong price drop during this cycle—the price just rose by several million percent. Then the second cycle began, which lasted 884 days and in the beginning of which the price fell by 93.76% and then rose by 62,308.04%. The third cycle lasted 1491 days, and the price fell by 92.62% and then rose by 21,578.61%. The fourth cycle lasted 1431 days and began with a price drop of 84.01%, after which the price rose by 2,071.57%. Now, according to this method, the fifth cycle has begun, within which the price of Bitcoin has already maximally fallen by 74.46%, that is, if we correlate with previous cycles and expect a further fall by up to 80–85%, then we can expect a bottom of Bitcoin in the range of 10,300–13,800 dollars per one Bitcoin.
“This does not mean that we will continue to fall to this zone from the current price values, and it is not at all certain that we will get there. If the current fifth cycle in time correlates with the previous ones and lasts around 1500 days, then the bearish part of the current cycle can last from 800 to 1100 days, of which more than 200 days are already behind, if November 8, 2021 is considered the beginning of the bearish trend. That is, in the end, we are waiting for a protracted fall, a long consolidation and total distrust in the cryptocurrency market. And this will be the first crypto winter that will take place simultaneously with a serious economic crisis around the world.”
Georgy Galoyan, Founder and CEO of DAO.vc, predicted a serious correction in the crypto market back in January of this year. Then the price of Bitcoin was named at $20,000, and already in June the price of the main cryptocurrency dropped to this mark. The expert notes that market correction is not such a rare occurrence. From year to year, a similar trend can be observed: growth—a sharp drop—recovery—growth.
Now the market has entered the accumulation phase. During this period, the price of Bitcoin and top coins is still unstable. It will not be surprising if in the next few weeks, Bitcoin drops back to $18,000 or, conversely, makes a short-term rebound to $22,000. In this phase, investors continue to accumulate coins in their portfolios in anticipation of an imminent recovery in the sector.
Alexander Miller, an independent financial adviser, trader and analyst, notes that the risk of a possible recession does not allow institutional investors to pour money into an unregulated decentralized market, with the majority of not only market, but also non-market risks present. Bitcoin has already lost more than two-thirds of its value since reaching almost $69,000 in November, and it has not traded below $10,000 since September 2020.
Retail investors feared cryptocurrencies more than their institutional colleagues, with nearly a quarter of them declaring the asset class junk. Professional investors were more open to digital assets. According to investor survey data from MLIV Pulse, Bitcoin is likely to drop to $10,000, cutting its value by about half. Given this sentiment, one can hardly count on small retail traders, without the support of large participants, being able to reverse the trend and return the main cryptocurrency to at least $30,000.
Alexander Lozben, head of the representative office of the largest mining pool ViaBTC in Europe and the CIS and a crypto enthusiast, says,
“First, forecasts are not a rewarding thing, and second, one cannot say that the crypto winter has already begun. If we are talking about the levels of correction that can now be observed in the cryptocurrency market, then most players are comfortable with them and it is impossible to talk about a big bloodshed. As a rule, those companies that are heavily indebted now have problems and, due to the cryptocurrency rate fall, they face the threat of liquidation and bankruptcy.”
The expert believes that this correction may be protracted, and this is due not only to what is happening in the cryptocurrency market. Cryptocurrencies are closely connected with general financial flows, and the global crisis has a strong impact on the securities market and can lead to a protracted financial recession. If you look globally, there has not yet been a crisis in the world due to COVID, the prices have been growing rapidly all these two years, although there haven’t been any real production in the economy. There must be some kind of reaction to this stress. We should not forget about the political processes that exacerbate the crisis. Cryptocurrency is not isolated, and it reacts to current events, so a fall is quite possible. But in the long term, there are no big risks for us not to see a new large-scale rise in the crypto market.
Dmitry Machikhin, CEO of BitNalog, says,
“How can you be afraid of a protracted correction if it has already lasted more than six months? Since 2011, historically, this is the biggest correction, the longest drop. Now Bitcoin is on a slight rebound, but it will still exist within the downtrend for a long time. It is very difficult to get out of such a steep dive, and it will take—according to the already established tradition—probably a couple of years.”
Renat Kalinchenko, a crypto enthusiast, an expert at Turov Invest, notes that it is difficult to predict when the market will turn around and Bitcoin will recover because the current correction can be for a year or two. He emphasizes that cryptocurrency, blockchain, NFT and DeFi are the future. These are the technologies that will develop anyway, and cryptocurrencies will live anyway.
The expert adds,
“Whether people like it or not, everyone will have to work with cryptocurrency, anyway. And those people who now understand this and are ready to suffer some losses for 1–2 years and are accumulating the falling asset at various levels will be very rich people in the future. So there is absolutely no need to be afraid. It is worth buying at different levels and just getting ready, waiting for the Bitcoin rise. In a moving market, you need to form a strategy and work according to this strategy.”
Dmitry Noskov, an expert at the StormGain crypto exchange, believes that the “crypto winter” will continue for some time, anyway. In his opinion, the correction will take place until the geopolitical situation and the situation with economic sanctions are clarified.
Vadim Tsarenkov, a leading crypto analyst at Vekus Mining Development, shared his analytical calculations with the readers of our magazine. Here we see an ascending price channel since 2013 and an ascending channel breakdown.
“I don't like the term ‘crypto winter’, as though it’s something short and fast. For example, the ‘crypto spring’ in 2018 was for a little over a month, in 2019 for 3 months. As though a ‘crypto winter’ were something fast, just 1–3 months—and it’s growing again. But this is nothing more than a hyped term that does not correspond to market reality.
“On the chart, I highlighted the bearish cycles of Bitcoin: 1 year, 1.8 years, 2.5 years. As you can see, the cycle stretches and lengthens over time. We are now in a bearish cycle from a price peak for 0.7 years, quite less than any previous cycle.”
Anton Bykov, senior analyst at Esperio, believes that the current correction will drag on for a long time: by fighting inflation, the Fed destroyed the entire positive effect of post-COVID stimuli. For instance, about 20% of global GDP was lost on the stock market. Most likely, in the coming years, the most optimistic scenario should be considered slow economic growth with low inflation. Changes in the direction of soft monetary policy are necessary in order to restart market processes, and this is well understood by the Fed, where they clearly do not want to leave Americans without savings in stocks, so there is no reason to panic. However, the current sluggish performance in both stocks and cryptocurrencies could drag on into 2024, giving enthusiasts plenty of time to buy assets at a discount.
Vladislav Akeliev, Director for Development of the ECOS cryptocurrency investment platform, reminds that the cryptocurrency market has already fallen by 71% from its maximum. In mid-June, Celsius froze withdrawals, the Terra blockchain collapsed, crypto hedging company Three Arrows Capital was forced to liquidate its assets after defaulting on loans. Those are some events that influence each other and exacerbate the situation of the crypto market.
The cryptocurrency market has fallen over 50% four times already, including the current downturn. When should the crypto winter end, based on previous experience? The average time to bottom is 303 days, and the average time to reach a new high is 945 days. By these figures, we are 60 days from the bottom and 710 days from a new high.
Artem Barger, Academic Supervisor of the Master’s Program in Blockchain at MIPT, Chairman of the Expert Council of the Idea Research Center, says,
“Over the past few months, we have seen a decline in the cryptocurrency markets. The price of the most popular currencies, such as Bitcoin and Ethereum, has reached its lowest level since December 2020. The current state undoubtedly calls into question the future of cryptocurrencies in general. It is worth noting that cryptocurrency markets in general are inherently highly volatile. Although similar falls have happened before, in the current situation, the fall has reached a very low level in recent months. The total market capitalization has fallen below the trillion dollar mark, which shows the volume of involvement of players in this market sector, but also highlights the risks associated with a high degree of unpredictability in relation to the volatility of cryptocurrencies.
“A more detailed analysis still leaves room for optimism, since Bitcoin and Ethereum are still far from the absolute bottom and many investors are still curious how the situation will develop further. But you need to understand that their exit will lead to an even deeper fall, according to experts, by 40% to 60%. The current situation in the cryptocurrency market is somewhat reminiscent of the situation with dot-coms in the early 2000s, and, apparently, the list of cryptocurrencies will be greatly reduced.
“The Bitcoin chart reflects the global market situation. All markets are now losing worth, the events are reflected in the S&P500 index, and its fall provokes a fall in the price of cryptocurrencies.”
Marina Trofimova, CMO of Tiger.Trade Copy, emphasizes that the correction of the crypto market is a completely natural phenomenon. Such a cyclicity has been observed in the last 5 years. The crypto winter, which is characterized by a sharp and protracted drop in prices for almost all cryptocurrencies, is followed by a market recovery and then a rapid increase in the prices of crypto assets. Most likely, the current period will not be an exception. The market is still under pressure, and therefore, it would not be surprising if Bitcoin fell down to the $15,000 mark, and after such a fall, a period of active recovery would begin. Now the market is at the stage of accumulation, which is a harbinger of growth.
Vasily Kudrin, partner of the Lybrion international group, speaking about the timing of the current crypto winter, notes that a sideways or slightly downward-sideways trend for key crypto assets is a likely scenario until the end of 2023. However, this is a quite healthy trend and a reaction of the investor community to the rapid growth of recent years. The expert believes that conscious investors need to stop focusing solely on Bitcoin. It is better to pay attention to new transforming ecosystems and earning crypto assets.
What events can affect the market adversely?
Despite everyone’s belief in the inevitable recovery of the bitcoin rate, since the market is cyclical in nature, everyone is interested in how low the top cryptocurrency can fall, as well as what events in the global economic and political arena can aggravate the situation in the crypto market and lead to further exchange rate fall. Experts and analysts shared their forecasts and concerns.
Vladimir Gorgadze, Head of the Blockchain Master’s Program at MIPT, Co-Founder of the Atomyze tokenization platform and Newity IT company, emphasizes that the dynamics of the crypto market depends on many factors, including macroeconomic indicators that affect global stock and commodity markets. The crypto asset market, however, is more volatile compared to traditional ones: it often grows faster than stock markets due to “hype”, media factors and the rather rapid emergence and release of new instruments (DeFi, NFT, etc.), but the crypto market reacts more sharply to the recession in the global economy, declining at a faster pace.
The expert notes that in the event of a decline in stock markets (as is happening now), institutional investors (the so-called “whales”) seek to get rid of unreliable assets, which are crypto assets, first of all. Will the recession in the world economy (and first of all in the economy #1, the USA) continue—the answer to this question worries many traditional investors, and almost all the world's leading economists are now making forecasts of it. It is quite certain that the dynamics of changes in the US economy will be the most influencing factor over the next six months, which will determine the dynamics of the crypto market.
Anti Danilevsky, CEO and Founder of Kick Ecosystem, says,
“Now we clearly see that the crisis in the US is developing, the fight against inflation is not producing results, and everyone is waiting for the next, more serious increase in the Fed's rate. The ECB also acts in a similar way, for it follows the States in everything. Considering the impending recession in the US and rising property prices, with which the Federal Reserve can do nothing, everything looks pretty sad. Moreover, further boost can be very harsh, even 75 bps. And everyone is afraid of this, because the United States cannot cope with inflation. On the other hand, cryptocurrencies are just designed to fight such phenomena, and the fact that they still follow the Nasdaq index and others is at least strange. But sooner or later, BTC will get unpegged from the market. In any case, if we talk about the next fed hikes, then this cannot continue indefinitely, like Chinese annual cryptocurrency bans. I think that the effect will be weaker each time.
“We are waiting for autumn–winter, as the chances of growth in the summer are very small. After all, we do not know 100% what can happen in the market. Perhaps something good will happen outside of my predictions that will start a crypto rally.”
Vyacheslav Konovalenko believes that a strong correlation with the traditional stock market seen in recent years can make its own adjustments to the cryptocurrency movement. In this case, two developments are possible:
- The first is if the correlation continues and the US economy continues to deteriorate, thereby causing stock indices to fall even lower. Cryptocurrency may follow them. And then the worst scenario for BTC is the range of 10,000–12,000 per coin.
- The second alternative. Correlation is a very unstable thing, and therefore, if the collapse of traditional markets continues, then the cryptocurrency market can become a haven for many investors, with its incredibly attractive prices at the moment. Then, despite the traditional markets, perhaps not a fall, but a flat for a couple of months, will ensue, which will gradually lead to a recovery in prices.
Marina Trofimova believes political events are unlikely to significantly affect the situation in the market, since cryptocurrencies are relatively independent of the decisions of world leaders. The expert notes that large coin holders can really collapse the Bitcoin rate even lower if they start actively selling crypto assets. However, there are no prerequisites for this yet.
Dmitry Machikhin says,
“There will be a negative news background, and it will be used by the bears to make money on a fall. This is also a market, it's just a market with smaller volumes, the winter market, so to say. This is also evidenced by the outflow of cryptocurrencies from the exchanges: when this happens, it means that the volumes on the exchanges are decreasing, people do not have a tendency to trade, because in a bear market there is more risk of losing than earning. You need to know how to trade. And everyone withdraws crypto to wallets to keep it until the next bull run.
“What is happening in the world does not at all help the exchange rate to return to growth due to hyperinflation and the systematic increase in rates in all developed economies. That is, we are heading towards belt-tightening and the depreciation of all assets. And volatile, unstable assets like technology stocks and cryptocurrencies are the first to suffer.”
Artem Barger emphasizes that the current crisis was caused by external factors and, first of all, accelerated inflation in developed countries. Unfortunately, the effect of inflation is long-lasting, and its consequences will be present for a long time, in particular, in relation to cryptocurrencies. The publication of the US inflation report led to a collapse of major indices by 5-6%. The current level of inflation means that regulators in the US and Europe will start a policy of financial regulation and increase interest rates, and this will lead to a reduction in liquidity in the markets and will directly affect the market of cryptocurrencies, which are still questionable in their applicability for many. As a result, the decline in the cryptocurrency market will be the most severe, and everything indicates that a tough period is coming for fans of the crypto market. A tightening of monetary policy will most likely mean liquidity being sucked out of high-risk markets.
Ivona Gutovich says,
“For the situation to change, an increase in global risk appetite is needed, and in the current turbulent conditions, this is simply not possible. Apparently, high interest rates will remain for a long time, as the Fed already underestimated inflation in 2021 and is not going to repeat the mistake, largely due to the severe crisis of the 1970s, when too sluggish fight against inflation in the end turned into a serious shock in the labor market. Thus, this is probably an end to the available funding of speculation in the foreseeable future.
“The current technical picture hints at a possible fall in the price of BTC below $10,000, followed by a “dead cat bounce” to the $30,000 region and a drop even lower, to $5,000. After that, the price can hang in the range of $5–15 thousand for a long time. The next rally could start in 2024 and target $110,000 per BTC.”
Dmitry Noskov emphasizes that the policy of financial regulators, which increase rates to fight inflation, is exerting strong pressure on the cryptocurrency market. This makes digital assets less popular with investors. It is this policy, if continued, that can aggravate the situation in the market.
Vladislav Akeliev believes that a further drop may be triggered by freezing funds from other platforms, which will scare away potential investors.
Datanar Atajanov, Brand Manager of the OXLY.IO crypto platform, says,
“Cryptoeconomics is still inextricably linked with the traditional system. And the times when it will be possible to safely shift from falling conventional financial assets to growing cryptocurrency assets have not yet come. Now, as long as global finance and politics experience crisis cataclysms, the crypto market will clearly respond to these processes. We are closely monitoring developments in the leading countries, for example, inflation, which rose to 9.1% and led to a drawdown in Bitcoin, or the US Federal Reserve rate hike, expecting a fall in the cryptocurrency rate.”
Georgy Galoyan also highlights events that could negatively affect the price of Bitcoin and the cryptocurrency market as a whole: a decrease in the activity of miners who prefer to reduce the intensity of production during the correction period, the global sale of coins by large investors, and others. Separately, the expert mentions geopolitical events. Although cryptocurrencies remain independent of the actions of politicians and, at the moment, there is no direct correlation between political decisions and the cryptocurrency market, protracted conflicts destroy the economies of countries and lead to a sharp increase in inflation. At this point, governments look for new ways to replenish the budget, including the legalization and use of crypto assets. For example, in Ukraine there is now mass adoption of cryptocurrencies. Thus, people are trying to save their savings from inflation.