Is the crypto collapse permanent or just a crypto winter?

by Arthur · August 16, 2022

Photo by KENA BETANCUR/AFP via Getty Images

AFP via Getty Images

Cryptocurrency is part of an exciting technology wave, but is it here to stay? With Bitcoin now more than ten years old, cryptocurrency is not an entirely new phenomenon. However, many people did not become aware of Bitcoin, Dogecoin and other cryptocurrencies until their values started to skyrocket during the COVID-19 pandemic.

But in the months since, prices are far from their peaks. Here’s a look at what cryptocurrencies are, what happened, and what the future may hold for crypto.

What is crypto?

Cryptocurrency is a type of digital currency that exists entirely online. Cryptocurrencies are created by volunteer developers, business owners and others who want to use crypto for their business, investment or others trying to make money.

Although prices change quickly, these are the most valuable digital currencies at the time of writing:

Bitcoin
Ethereum
Tether
USD coin
Binance coin
XRP
Cardano
Binance USD
Solana
Polka dot

Popularized as a meme coin and a favorite of Elon Musk at the height of COVID, Dogecoin ranks as the 11th largest digital currency. Some currencies are required to perform certain transactions, such as sending crypto, NFTs, and executing smart contracts. Some are used as currency by certain online games or businesses. Others offer little utility beyond associating with a cute animal or comically named project.

Table of Contents

How Crypto Works 101

Many of the largest cryptocurrencies are run by communities of developers who work together to maintain and improve the currency’s database, known as a blockchain. Blockchain is an industry term for a distributed, or decentralized, public database used to process and track cryptocurrency transactions.

Some currencies, such as Bitcoin and Ethereum, rely on their own blockchains to enable transactions. Others, such as USD Coin, operate with other blockchains. Either way, every coin (currency that uses its own blockchain) and token (currency that uses another blockchain) is tracked from inception to current ownership using the blockchain database.

Every coin, token and other digital asset that uses blockchain must be assigned an owner through a digital wallet address. Digital wallets are free to create online as a software wallet, or you can purchase a more secure hardware wallet.

When you buy and sell crypto through a major exchange like Coinbase, the exchange handles wallet details for you, so your experience is more like a stock market account. But when someone else has your crypto, there is a higher risk of loss. Unlike bank accounts and traditional investment accounts, crypto is not insured by the FDIC, NCUA or SIPC.

Anyone with an internet connection can send crypto to anyone else using a compatible digital wallet address. This is why many proponents are excited about cryptocurrency. It democratizes money in a way. Unlike fiat currencies (government-backed currencies), there is not necessarily a single entity in charge of a cryptocurrency. However, it also means that cryptocurrency is only worth what someone is willing to pay or the value it provides. Opponents say it’s actually zero.

There is no need for a bank, government, brokerage, etc. where there is a decentralized public ledger. The system is maintained by a distributed network of computers called miners, who typically earn a fee for successfully processing transactions.

The rise and fall of crypto during COVID-19

Bitcoin price chart from early 2017 to date. Find the latest price here.

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Bitcoin price chart from early 2017 to date. Find the latest price here.

The most valuable cryptocurrency is Bitcoin, with a current price of around $24,000 per coin and a market cap of around $500 billion. Early buyers got rich, as the coin was worth about $100 in 2013 and reached $1,000 in 2017. In late 2017, it reached about $20,000 before a long hiatus, sometimes called a “crypto winter,” that led to COVID-19 – the pandemic.

The price turned upside down in late 2020, well into the COVID experience. However, the currency also experienced great volatility and a huge drop to today’s price level.

If you review a recent chart, not everyone is a crypto skeptic. Bitcoin, Ethereum and others have recovered somewhat from recent declines. But only time will tell what happens next.

If you want to invest in crypto without buying it outright, consider the Q.ai Crypto Kit that includes cryptocurrencies and trusts that include cryptocurrencies. Companies including Tesla and Riot Blockchain hold crypto on their balance sheets or are directly involved in the industry. Emerging Tech and Tech Rally offer general light exposure for the industry. The Crypto and Bitcoin Breakout Kits are completely focused on the digital economy.

Dot Com Bubble 2.0?

With many mixed opinions about cryptocurrency, it can be difficult to know what to do or how to understand the cryptocurrency landscape. While this analogy may ultimately prove to be false, the world of crypto looks a lot like the booming online business world around the turn of the millennium.

After an apparent investment craze in any stock related to a new invention called the Internet died down, Internet stock prices fell, along with the recession of the early 2000s. Dozens of prominent companies saw great difficulties during this period. That is if they survived at all. Pets.com, 360networks, Boo.com, Egghead Software, eToys.com and Excite are just a few notable failures.

But the period was not so bad for everyone. Household names like Amazon, eBay and Google emerged as some of the world’s most successful and valuable companies (Q.ai also offers sets focused on large tech companies). While many cryptocurrencies are almost certain to go the way of Pets.com, there is a good chance that big successes will emerge from the cryptocurrency world.

The bottom line on the crypto collapse

The COVID crypto boom made almost all investors aware of currencies like Shiba Inu, Litecoin, Avalanche and Polygon. Just like the Dot Com crash, some cryptocurrencies may never recover. However, those who offer a useful service or work with specific businesses may stick around for the long term. What that means for crypto prices in the meantime is anyone’s guess.

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