If you have just gotten into cryptocurrencies, it is likely that you have heard the term “Crypto Winter”. This should not be surprising, considering that we are in one right now. Cryptocurrencies have become very popular not just among traders and investors but also among regular people, who specifically started opening crypto exchange accounts in order to invest in these tokens, without having done any significant research. What this means is that currently, the market is saturated with many people, who just got into the world of crypto trading and investing.
Because of this, there are many confusing terms that experienced traders and investors are using on a regular basis that should be explained. Learning these terms might not be the alpha and omega of trading, but it is a must for everyone getting into crypto. “Crypto winter” is one of these terms, and today we will tell you exactly what it is and why it is important.
What is crypto winter?
Crypto winter is a term used to describe a poorly performing crypto market, especially when prices fall drastically after hitting very high peaks. Essentially, a crypto winter is the same as a bear market in stocks, but it usually tends to last longer. Unlike bear markets, where in most cases it is clear what caused a market downturn, crypto winters can occur seemingly at random. It is caused by the way crypto prices move and behave though, as they are speculative assets, not backed by anything real. Because of this, crypto prices depend on people’s belief in them, so if a lot of people think that prices are going to go up, they invest a lot and prices actually rise, while if the belief is that they have less value, prices go down as people sell their crypto.
Up until now, we have already gone through multiple crypto winters, most notably in 2018, and the one happening right now, which started in 2021. The crypto winter which started in 2018 lasted almost 3 years when prices fell drastically in a very short period of time and remained like that up until late 2020. Just before this winter began, cryptocurrencies were booming, and in just half a year they managed to grow from a $50 billion market capitalization all the way to $750 billion. But shortly after hitting this peak, prices fell dramatically and the market went into recession for almost 3 years, before it started to pick up again in late 2020.
When crypto winter ended in 2020, prices started to skyrocket like never before. At the end of 2020, the crypto market cap was around $250 billion, and in just 2 years this number was close to $3 trillion. But as soon as this peak was reached, people who invested very early started to take out the astronomical profits they made, combining this with the speculative nature of cryptocurrencies, prices started to plummet as we entered a new crypto winter that is currently still ongoing.
What to do during crypto winter
The crypto market usually comes around when a lot of new people have joined the market. This is because crypto winters happen after prices reach new peaks, and with that, a lot of new people start to look at these assets more seriously. So when a crypto winter rolls around, a lot of these newcomers are confused as to what is happening. Wherever you go through the web, you will see every kind of prediction as to what is going to happen next, and a lot of people will start stating that winter will end soon, while a lot of others start calling it the end of cryptocurrencies altogether. But, as cryptocurrencies are speculative assets, without anything tangible backing them, the possibility of everything exploding and crashing down is ever-present. At the same time, there is also a very high chance that crypto will rebound and start to grow again, reaching new heights.
Because of this, there is no correct way to approach the subject and every person should decide on their own. For traders there is one bit of good news coming from all this, which is the fact that cryptocurrencies become super volatile during this period, giving traders a chance to make very good profits. When looking at the market charts during a crypto winter, you will notice that there are months when most tokens have shown positive gains, and there are months when most tokens have lost their value. This change in direction is what stops cryptocurrencies from growing or falling altogether. Traders can take advantage of this market behavior and trade according to the market direction to make some money. But keep in mind that the possibility of the market making a sharp turn is always there, so make sure to trade with caution.
If you are someone who is not a trader, or at least experienced enough to trade in a highly volatile market such as cryptocurrencies, there is another approach you can use.
Whenever a crypto winter rolls around, a lot of cryptocurrencies die out, and the tokens that held positions inside the top 20 or top 30 for a long time start to lose big chunks of their value. If the market then rebounds, a good number of these tokens fail to follow this growth trend and are left behind. With these tokens falling out of the charts, their places will be taken by new projects that have gained the interest of investors during these hard times. There is a strategy where during crypto winters, traders are looking at upcoming projects that might be interesting and making small investments in multiple projects they find most appealing. Once the crypto winter ends, the success of even one of these projects might be enough to make you profits, as after each crypto winter, prices tend to rise very sharply and your $100 investment in one token might be worth tens of thousands of dollars in just 1-2 years. But there is also a risk that none of these projects will succeed and you might end up losing the total sum of your investments. As such, we would suggest that you only invest an amount of money that you can afford to lose.
FAQs on crypto winter
Should I buy Bitcoin during a crypto winter?
It depends on what you believe will happen after the winter. Historically, buying Bitcoin during the crypto winter is one of the best times to invest in this asset. Thus far, after every past major crypto winter, Bitcoin started to grow and hit new peaks, and considering that the last peak was $69,000, there is a chance of it going even higher.
When will this crypto winter end?
No one knows exactly when the current crypto winter will end. It has been one year since the market crashed and it has been on the decline ever since. What we can expect is that the market will remain like this for some time and that the winter is not going to end very soon. Most experts expect that the crypto winter will continue through 2023 as well, but there is always a possibility that crypto will rebound and start growing again.