What is Crypto Winter? Has it Come yet? What To Do in Crypto Winter?
A lot of people are talking about the potential of a crypto winter coming this year. Is it true? The short answer is no one is sure but there are signs that it is approaching.
The best way to know for sure is to look at the information available to you and decide for yourself. Luckily for you, we have all the information you need right here starting with answering the question, “what is a crypto winter”.
What is Crypto Winter?
The term “crypto winter” is most generally connected with the downturn in the Bitcoin market between late 2017 and late 2018, it also refers to a period of sustained price reductions over an extended time.
Sadly there could be bad news for the crypto community since the phrase “crypto winter” is making a comeback after the cryptocurrency market suffered a $1.2 trillion loss in the last three months.
Are We in A Crypto Winter?
This is a question that everyone wants an answer to and although no one can 100% predict the future there are signs showing that a crypto winter is about to come.
Signs That We Are Heading Toward A Crypto Winter
Bitcoin and Ethereum Are Experiencing Rebound
One telltale sign that crypto winter is coming is the sudden rebound of the two highest cryptocurrencies in the market. I’m talking about Bitcoin and Ethereum.
In an article published by CNBC on January 2022, the news outlet reported that:
“The price of Bitcoin, the most popular virtual currency in the world, plummeted to a new low of $33,000 on Monday, marking the first time it has done so since July. It reached an all-time high of approximately $69,000 in November. During that time, it has dropped by approximately 50%.
Since bitcoin’s all-time high, the cryptocurrency market as a whole has lost more than $1 trillion in value, as major tokens like ether and Solana have traded at a significant discount to the world’s most valuable digital currency, bitcoin. Because of this, the value of ether has plunged by more than half since November, while the value of Solana has plummeted by a stunning 65 percent since November.”
This is disheartening news for a lot of traders and CNBC states in the same article that some cryptocurrency investors are speculating about the possibility of a “crypto winter”. An example of this occurred in late 2017 and early 2018, when bitcoin experienced a significant drop from its all-time high, falling by as much as 80 percent.
The War With Ukraine
This might seem entirely unrelated but current events have a big impact on the state of the cryptocurrency market. The recent situation in Ukraine is one hint that crypto winter is on its way.
When war breaks out, all financial markets are brought to a halt. The cryptocurrency market might be special but it will still be affected in one way or another especially if the cryptocurrency economy in the US and Russia are going to be affected.
The sanctions that have been imposed on Russia and Belarus as a result of this dispute will have an impact on the Bitcoin business. In response to the present crisis in Ukraine, the European Commission confirmed in a statement that new sanctions will be placed on Russia and Belarus in respect to cryptocurrency assets.
Private firms, ranging from McDonald’s to Visa and Mastercard, have suggested that they may restrict or cease activities in Russia and Belarus as a result of the Ukraine crisis. In addition to legislative action, this is being done.
Aside from that, Binance said that it will no longer be able to take payments from the two largest credit card companies in Russia. We’ll have to wait and see what the main cryptocurrency exchanges decide to do in the next days and weeks, though.
Lastly, officials from the United States and the European Union have warned that Russia may resort to digital money to circumvent sanctions imposed upon them. Making their use of cryptocurrency a form of economic warfare.
Biden’s Executive Order
President Joe Biden signed an executive order earlier this week mandating that federal institutions collaborate to develop a national framework for cryptocurrency and investigate the feasibility of implementing a central bank digital currency. The order is effective immediately.
The executive order has sparked divisive opinions. According to Treasury Secretary Janet Yellen, this executive order might result in substantial benefits for the consumers, companies, and the whole nation.
On the other hand, according to Massachusetts Senator Elizabeth Warren, who has regularly linked cryptocurrencies to criminal activity. She also stated that the United States needs a firm grasp on this situation and create tight limitations before it’s too late.”
Signs That It May Not Come
Biden’s Executive Order
If you’re surprised to find this here it’s because Biden’s executive order may not be entirely harmful to crypto. Others think that this executive order is a blessing in disguise. The Crypto Council for Innovation stated in their tweet that:
With the signing of the Executive Order, President Biden acknowledges the great potential of cryptocurrency. That is an indication of how significant crypto is to the general public in the United States. His commitment to responsible financial innovation, as well as a more equal economy, is something that we can identify with.
So this executive order might not lead to a crypto winter after all. But only time will tell what Biden’s executive order will do to the crypto market.
Tons of Enterprises Are Still Investing in Cryptocurrency
Despite what regulators and current events have done, a lot of companies are still making moves in the crypto market, and a lot of them are focusing on metaverse projects. Although the metaverse isn’t entirely crypto, it still has a lot of influence on the cryptocurrency market and crypto projects.
The Sandbox is home to one of Siam Commercial Bank’s newest ventures: a virtual office. As stated in the announcement, the office will open its doors and will serve as a focal point for communication among the world’s construction industry participants.
The Bjarke Ingels Group and Vice Media’s creative agency Virtue Futures collaborated on the design of a new metaverse headquarters in Decentraland, New Jersey. It has been termed the “Viceverse office,” and it serves as a meeting space for Vice Media Group staff.
KuCoin has created an office in Bloktopia, a virtual reality realm where people may play games. The trading platform announced that the KuCoin Meta Office is now available for download. Its purpose is to provide visitors with an immersive metaverse experience as well as a way of participating in a social discussion in real-time on the platform.
Governments All Over The World Are Still Accepting Cryptocurrencies
Aside from companies making moves in the crypto scene, governments are still deciding what to do with cryptocurrencies. And if they choose to accept and incorporate crypto in their economy then this can help stimulate both of their economies. In short, this stimulation in the crypto economy might help prevent a crypto winter.
As of now, several countries are making moves to incorporate cryptocurrencies into their economy. We have listed a few cases below.
The Philippines’ central bank, also known as the Bangko Sentral ng Pilipinas (BSP), and the Alliance for Financial Inclusion (AFI) announced the commencement of Project CBDCPh, which would serve as a pilot implementation of a CBDC in the Philippines.
As part of its efforts to encourage investment in the digital asset market, Thailand’s Finance Ministry has reportedly relaxed its restrictions on cryptocurrency taxation.
Initially, the government planned to apply an additional 15 percent tax on cryptocurrency earnings, but that idea was scrapped. The new tax policy exempts cryptocurrency dealers from having to pay the VAT of 7 percent on authorized exchanges, which was previously levied against the dealers.
Traders would be able to take advantage of the new tax structure to offset their annual losses against their gains from cryptocurrency investments. Traders will be happy to know that most governments are only concerned with taxing gains at this point, and are therefore ignoring the losses suffered by traders as a result of the volatility of the cryptocurrency market. The new tax exemptions would be in effect from April 2022 to December 2023, for a total of five years.
The country intends to build an entirely new regulatory system for cryptocurrency exchanges as part of the consultation phase that will take place in 2022. By allowing users to acquire and trade cryptocurrency assets with confidence, when this method is implemented, it will propel Australia to the forefront of the global movement to regulate internet enterprises.
According to proposed new legislation in Japan, stablecoins will be permitted to be produced exclusively by banks and wire transfer service providers alone. Japan’s Financial Services Agency (FSA) has stated that a regulation will be introduced in 2022.
Is it Going to Come?
In short, the signs are showing that we are heading towards a crypto winter and it might even be worse than the first one. Some people even comment that it has already come and we are in the middle of it.
But some signs show that we might not even get a crypto winter. It depends on how things will go in the upcoming months.
What We Need to Do During Crypto Winter
Whether we will have a crypto winter or not, it’s prudent to be prepared for it when it eventually comes. If you’re wondering what you should do during this time of crisis, then we have some advice that you should follow to help minimize your losses.
Limit Margin Trading
For those that don’t know margin trading allows you to borrow funds to leverage your trades. It can be very profitable but it can be hazardous as well.
Traders can borrow money against their current balances to trade bitcoin on the margin on a cryptocurrency exchange. To put it another way, customers can increase their purchasing power by borrowing money in return for the crypto or dollar assets that they currently have in their hands.
When you maintain a margin position, you will often pay or receive money based on the current “funding” rate determined by the market. In a peer-to-peer environment, rates are determined by factors such as the difference between the futures price of an asset and the spot price of that item. Depending on the funding, longs may pay interest to shorts or shorts may pay interest to longs.
Margin trading is a high-risk and high-return activity. It will net you good returns if you know what you’re doing. But if you are heading into a crypto winter, we recommend that you lay low for a while and limit your margin trading.
The crypto market is going to be more volatile than ever, you can play it safe and minimize your losses. However, if you think you have a good grasp on the market, then by all means trade. You might gain a lot in the process, just keep in mind that you can lose a lot as well.
Restructure Your Crypto Portfolio
When the market goes into decline, all currencies lose value, but only the best projects can recover quickly when the market goes into recovery. You may never be able to recover your money back.
This is why we recommend that you conduct a thorough audit of your crypto portfolio and be prepared to discard underperforming projects. Restructuring your holdings is crucial if you want to minimize the damage to your finances.
If you’re a beginner when it comes to cryptocurrency, then we recommend you take a look at these projects because they have a high likelihood of recovering from the crypto winter:
Binance smart chain (BNB)
Initialized as an Ethereum ERC-20 token and later moved to the Binance network, Binance Coin (BNB) is a cryptocurrency that was launched in 2017. The Binance trading platform, which is the world’s largest cryptocurrency exchange in terms of trading volume, now accepts Bitcoin as a form of payment for all transactions.
On the blockchain, a deflationary burning mechanism is utilized to ensure that there is a finite number of coins available. It buys back and burns BNB coins at a rate of 20 percent of revenues, with the proceeds going to charity. Ultimately, the goal is to burn 100 million Binance coins, which will reduce the coin’s supply while increasing demand for the cryptocurrency.
A large number of people are optimistic about the future expansion of BNB. Because of its great utility and minimal volatility, investing in this coin has minimal risks. It distinguishes itself from the competition because it has real-world applications, such as paying for Binance exchange deals.
Furthermore, the native cryptocurrency of Binance Smart Chain poses a serious threat to the Ethereum network as a whole. BNB is taking advantage of the growing Defi ecosystem with several initiatives and a $1 billion investment in the projects’ expansion. Despite the decline in value, several factors point to a price rebound in the near future.
The integration of real-world data into Ethereum is not possible. Chainlink fills this void by establishing an oracle network that incorporates market data, bank payments, retail payments, web APIs, and backend systems, among other features.
Real-world APIs and smart contracts are linked together by an oracle network. Its network, which operates in a decentralized financial network, is responsible for safeguarding billion-dollar smart contract values. This token is used in a variety of applications, including stable coin contracts, cryptocurrency derivatives, lending and borrowing, and cryptocurrency asset management, to name a few.
With the ability to correlate transactions to real-world data, Chainlink will no doubt see an increase in value. Chainlink is a good investment to make in a bear market or a crypto winter.
Near protocol (Near)
Near makes use of a delegated proof-of-stake blockchain, which distinguishes it from other cryptocurrency platforms. These characteristics make it possible to conduct transactions that are more efficient, less expensive, and faster than those currently permitted by Ethereum. Near is after all dubbed as an “Ethereum Killer”
When compared to Ethereum, NEAR’s layer 1 blockchain provides smart contracts and decentralized applications (dapps) at lightning-fast rates and for a fraction of the cost of a transaction on Ethereum. Because of its superior technological capabilities, it will outperform Ethereum 2.0 and will be able to compete with coins like Solana, Cardano, and Avalanche.
Solana’s blockchain technology is a one-of-a-kind innovation. Proof-of-stake consensus is used in conjunction with a proof-of-history method built into the cryptocurrency. Transactions are processed sequentially and in chronological order. This allows the entire network to operate more efficiently and at lower costs as a result.
As one of the potential “Ethereum killer” altcoins, Solana’s robust platform has shown an exceptional ability to stimulate innovation in a variety of ways. The ease with which Solana may be used as an online retail platform is a significant selling point for investors.
Oasis Network (Rose)
Oasis is a proof-of-stake smart-contract blockchain that places a focus on anonymity. In contrast to Ethereum, the Oasis blockchain ensures that transactions and computations are hidden from view, ensuring that users and applications remain anonymous at all times.
The Oasis Network provides a wealth of resources to offer businesses. The platform’s versatility, as well as its privacy-conscious approach, benefit both developers and customers. It is anticipated that activity will increase significantly in the future, as more people make use of this project’s unique features.
Polkadot was designed to be more scalable than its predecessors, which allows it to be more adaptable. The ecosystem of connected blockchains built by Polkadot is more than a single blockchain. The relay chain, also known as a central chain, protects the entire network while the capacity of the network is expanded through the use of side chains, also known as parachains.
Ultimately, Polkadot wants to build a genuinely decentralized internet where users may safely access whatever type of decentralized application or service they like to use. As a result of Polkadot’s ability to link and protect an ecosystem of blockchains, it is more scalable than previous blockchain technologies.
Cardano is one of the most ambitious and idealistic cryptocurrencies, seeking to find effective solutions to the scalability and resilience issues that the dominating Bitcoin and Ethereum have been experiencing.
The Cardano network, which is based on the Ouroboros protocol, is a third-generation blockchain platform that was built on scientific and academic research conducted by cybersecurity and engineering experts.
Cardano is a promising cryptocurrency that has a real chance of surpassing Ethereum as the dominant cryptocurrency in the cryptocurrency industry. Cardano may not be a financial success at the moment, but it has the potential to become a big competitor to the cryptocurrency market’s strongest players in the future.
In essence, Algorand is a permissionless, pure proof-of-stake blockchain that contributes to the entire participation, security, and speed of its decentralized network by eliminating the need for permissions.
The Proof of Stake algorithm is used in the Algorand network to choose committees of participating holders that validate and approve the next block in the chain, which is generated at random.
Currently, Algorand is Ethereum’s main rival in the cryptocurrency market. Algorand formed a partnership with Hivemind Capital with the latter giving it $2.5 billion to expand its infrastructure. With huge potential and a lot of funding, Alogrand is a project that might be worth investing in.
In addition to being high-performance, scalable, configurable, and secure, Avalanche is also highly configurable. Scalability, decentralization, governance, and democratic ideals are all stressed in the platform, which is open and flexible in its design and implementation.
Avalanche, in contrast to the majority of other staking platforms, has a fixed capped supply of 720 million coins, resulting in a scarcity of resources. Aside from this, the majority of other staking sites have a limitless supply and are constantly increasing their supply.
Avalanche’s native currency, AVAX, has excellent transaction security and transaction rates of up to a trillion transactions per second, making it a very attractive cryptocurrency.
Keep your Wits and have a long-term vision
One of the most difficult aspects of investing in cryptocurrencies for investors is avoiding being swept away by the excitement that surrounds the market. And in our case, it’s not excitement but the fear created by the potential coming of crypto winter.
We recommend that you keep your wits about you and avoid doing anything rash. Don’t make any actions fueled by emotions like suddenly selling off all of your crypto assets or buying a huge amount of coins on potential projects.
It’s important to think of the long term in this matter. Remember that a crypto winter already happened and we survived it. Incorporate this into your plans and remember that crypto investing is a long-term game.
Manage personal finances well and prepare additional funds for Dollar Cost Averaging (DCA)
Since you’ll be expecting some financial problems with cryptocurrency, now is the time to set your finances straight. Create a budget plan and you might have to cancel that vacation or expensive dinner date that you were planning to do.
Another thing we recommend is that you set aside some money for Dollar-cost averaging (DCA). DCA is a technique for investing a predetermined amount of money in smaller sums over some time. Using this technique, you may profit from crypto market dips while not putting too much money at risk at any given time. This strategy allows you to have more cash on hand while still profiting from market gains.
At the end of the day, DCA averages out your contributions so that, over time, you’ll be investing in the cryptocurrency of your choice without being affected by extremely high or low points as much as you would be if you put a significant amount of money all at once.
A crypto winter might come and freeze the cryptocurrency market. Now, this isn’t 100% confirmed but it’s better to be safe than sorry. We recommend that you stock for the upcoming winter and prepare both mentally and financially.
* We hope this information will help you in your investment process, but this is not investment advice. Every investment carries risk, especially in this industry, so DYOR before making a decision.