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Crypto Winter

What is crypto-winter?

Crypto Winter is a common expression that refers to a poorly performing cryptocurrency market . The term is comparable to a bear market in the stock market. Cryptocurrency winter refers to negative sentiment and lower average asset values among a large number of digital currencies.

Research shows that crypto-winter has a big impact on the mindset of investors.

The founder of Etherium, Vitalik Buterin, said that the bearish trend will give developers an opportunity to focus on improving projects. 

Cryptocurrency billionaire Vitalik Buterin noted in an interview the benefits of a deep and prolonged correction of the crypto market. According to him, the industry will benefit greatly from the fall in cryptocurrencies, and every investor is quite capable of benefiting from the situation.

"A lot of people who have a deep understanding of crypto and especially project creation welcome a bear market. Because when there are such long periods when prices move at a huge pace, as they are now, makes a lot of people happy and tends to trigger a lot of short-term trades."

Buterin noted that the huge capital previously invested in the bull market created crypto billionaires and millionaires overnight. At the same time, one trader's astronomical profits turned out to be the downfall of another. At that time, the most common schemes were pumping and dumping the market. Many cryptocurrency projects were conceived only for short-term gain.

"Winter is the time when many of these applications leave the market and you can see which projects are actually long-term, both in their models and in their teams."

Looking at the history of cryptocurrency prices, it is sometimes easy to identify a crypto winter because a downturn can be accompanied by a double-digit percentage drop in cryptocurrency value.

* A cryptocurrency winter or cryptocurrency winter is a period of lower cryptocurrency prices.

* Cryptocurrency markets can follow patterns similar to stock markets, with up and down cycles.

* Cryptocurrencies are a relatively new asset class, and it is possible that prices will never recover from Crypto Winter.

Understanding Crypto Winter.

There have been several Crypto Winter in the past. For example, from late 2017 to December 2020, cryptocurrency prices fell and fluctuated far from previous peak prices. However, in December 2020, prices exploded to record highs in a significant cryptocurrency bull market.

There are no generally accepted specific guidelines as to how much cryptocurrency prices must fall in order to be considered Crypto Winter. But market leaders and influencers tend to publicly agree when something has started, as they did in early 2022.

Because of the volatility of cryptocurrency markets, it is impossible to accurately predict future price changes. Nevertheless, it's helpful for crypto investors to know that Crypto Winter happen.

Concerns about Crypto Winters

Although the stock market has a succession of ebbs and flows , cryptocurrency has a much shorter history of just over a decade. It's entirely possible that any crypto winter could go on forever. In a worst-case scenario for investors, a long-term cryptocurrency winter could lead to a decline in asset values as it approaches zero.

Cryptocurrencies and cryptocurrency exchanges operate under minimum financial rules . Although a few cryptocurrency companies have been in the crosshairs of regulators, most of them operate without much oversight. This sets the stage for fraud and scams that consumers should be aware of, including the risk of loss when holding cryptocurrency for long periods of time.

How is Crypto Winter different from a bear market?

The term "bear market" usually refers to a period when stocks are cheap, often due to a combination of economic factors. While a bear market and crypto winter may coincide, they are not necessarily correlated.

Stock prices are determined by market forces, and investors rely on fundamental and technical analysis strategies to determine target prices. With cryptocurrencies, valuation models are in their infancy. This can lead to a serious disconnect between stocks and cryptocurrencies.

However, as the crypto-winter that began in 2021 shows, there is a possibility that a stock market crash could occur at the same time as a cryptocurrency market crash.

Does crypto-winter affect all cryptocurrencies?

A typical crypto-winter affects most cryptocurrencies. Although exceptions are possible, investors should plan for a market-wide downturn during crypto-winter periods.

Are cryptocurrencies worthless?

Some cryptocurrency skeptics argue that cryptocurrencies have no intrinsic value and will eventually fall to zero. On the other hand, crypto-enthusiasts expect the cryptocurrency market to grow and become an integral part of the global economy. There are no guarantees as to which camp is right or the answer is somewhere in the middle. Investors and buyers must determine the true value of digital assets.

05.07.2022, 13:21