Bad news for Bitcoin fans: Crypto winter may have only just begun

by James · August 29, 2022

The cryptocurrency market fell back below $1 trillion, valued at $997 billion at last check.

Bitcoin, the king of cryptocurrencies, is below the symbolic $20,000 threshold for the first time since July 14.

The fear that dominated the markets in May, June and early July is back. Investors expect the economy could slide into recession as the Federal Reserve aggressively raises interest rates to combat inflation, which is at a 40-year high.

This fear has only added to the volatility of 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 falls last for a good period, we talk about the crypto winter setting in.

There have been several episodes since the introduction of bitcoin in 2009. But initially we were mainly talking about crypto bubbles bursting rather than crypto winters. Let’s look at the two longest main crypto winters.

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January 2014 to February 2017

On January 6, 2014, bitcoin was trading around $1,000. The next day, prices fell and did not recover until February 2, 2017. This crypto winter, which lasted nearly 37 months, was caused by 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 these bitcoins still haven’t gotten their money back.

During this crypto winter, bitcoin’s price had fallen as low as $210, a drop of around 79%, according to data from CoinGecko.

Bitcoin’s price rebounded and broke above the $1,000 threshold on February 2, 2017, reaching $1,015.44. Unlike the bursting of the crypto bubble in 2011, in 2014 there was less talk of 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 the collapse came. Within days, the price went to $10,000. They fell to around $3,400 in December 2018, a decline of more than 80% in less than a year.

The bull run had been fueled by retail investors finally opening their arms and wallets to bitcoin. Crypto was in a rage. Bitcoin was everywhere, in conversations in the city, at parties with friends, at work.

This was also the era of the first crypto millionaires, who talked about retiring before the age of 30. But when these early investors started withdrawing their bitcoins, prices crashed.

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Bitcoin returned to the $20,000 level in December 2020.

Meanwhile, ether rose from $9 in January 2017 to $1,000 in January 2018, according to CoinGecko. It was an extraordinary increase for the No. 2 cryptocurrency by market capitalization.

But ether prices then fell to $87 in mid-December 2018. And they wouldn’t return to around $1,000 until January 3, 2021.

2022 and … September

Bitcoin has fallen more than 71% since hitting a record high of $69,044.77 on November 10, 2021.

Ether has lost more than 70% of its value compared to its all-time high of $4,878.26, set on 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; the investors’ pain is immense. With this 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 problems inherent in the crypto industry.

The biggest of these problems 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 through 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.