crypto strategy

Crypto Winter is thawing. History tells us that prices will rebound

Crypto winter? Pfft. Bears won’t last, despite these furious threats that have plagued the crypto market since late 2021. Remember, cryptocurrencies have bounced back strongly in the past, says Khaleulla BaigCEO of KoinBasket.

After peaking at ~$18,000 in December 2017, Bitcoin (BTC) lost nearly 80% of its value in the ensuing 12-month period. It was only to resume his upward journey ever since and reach new heights.

With the COVID-19 pandemic ravaging traditional markets around the world in the first half of 2020, investors’ attention has shifted. The new focus was the booming cryptocurrency market, which was reflected in BTC’s meteoric rise from around $5,000 in March 2020 to $68,990 in November 2021.

And even. Recently, BTC and the broader crypto market found themselves in an extended bearish phase, also known as “crypto winter” ever since. There are over 300 million crypto investors in the world today. Many are understandably worried about the future. But it’s worth looking at how cryptocurrencies have performed before. Let’s take a look at how new-age asset classes fared during their early days of adoption.

Crypto winter: comfort from 2018

BTC and Ethereum (ETH) took nearly two years to recoup their losses from their December 2017 peak. Despite this, BTC and other major cryptocurrencies like ETH have been one of the best performing assets on all markets since the start of the COVID-19 pandemic.

While the S&P500 has rebounded around 70% since its March 2020 low, BTC has appreciated around 450%. ETH has returned over 1200% over the same period. This is despite both cryptocurrencies correcting more than 50% from their all-time highs (ATH). This is indicative of the exponential increase in investor interest.

In fact, BTC went through four different bear cycles even before the 2018 crypto winter. It bounced smartly each time before hitting a new ATH.

Moreover, these bear cycles lasted between three months and up to a year, before the start of the next bull phase, which drove up crypto adoption and cryptocurrency prices. Long-term value investors will find this fact extremely comforting, even as volatility continues to plague the entire basket of cryptocurrencies available today. As long as you have a long-term investment horizon, top-tier cryptocurrencies have never failed to deliver above-market returns, when analyzed over a five-year time frame.

Rapid Digital Adoption Powering Crypto Applications

With the COVID-19 pandemic confining many people to their homes, the digital economy received a major boost and has never looked back since. Even after economies around the world reopen, consumers are relishing new experiences and increasingly consuming via the internet.

The rise of applications, digital assets, platforms and a thriving global crypto community based on blockchain technology is a classic example of this tectonic shift in consumer preferences. Laying the groundwork for a new iteration of the internet, web3-focused start-ups have already innovated digital assets such as non-fungible tokens (NFTs). They introduce a global audience to a more democratic way of doing business on the Internet today.

This has led many experts to believe that this trend will only accelerate. It even prompted Web2 companies like Meta to double down on their investments in the Web3 space. Also in terms of user adoption, a collaborative study by BCG, Bitget and Foresight Ventures estimated that the number of cryptocurrency users will more than triple to one billion by 2030.

Assuming this number will be a proxy for users interacting in a Web3 world, it would be safe to assume that the demand for cryptocurrencies and other crypto assets will also see a positive friction effect.

Let it thaw, let it thaw, let it thaw!

Rising Investment in Crypto Firms Signals Bright Prospects

At the peak of the crypto boom in November 2021, the overall cryptocurrency market capitalization had surpassed the $3 trillion mark and coincided with the highest number of investments made in crypto-based businesses.

According to a JP Morgan analyst, 2021 saw $32.7 billion in venture capital (VC) investments in crypto and blockchain-based start-ups, with over 1,000 separate deals and businesses involved. So far, for 2022, that figure is over $18.3 billion. This belies cries from crypto critics calling the current bear cycle the final capitulation of the cryptocurrency market.

On the contrary, the increase in investment only underlines the confidence displayed by entrepreneurs and companies in the promise of Web3. It also serves to highlight the rapid pace of development taking place within the crypto industry. This should eventually result in a resumption of the long-term uptrend, when it comes to fundamentally strong cryptocurrency prices in the near future.

Comparison of cryptocurrencies with the beginnings of the Internet

People all over the world increasingly prefer to experiment with new technologies and transact using digital assets like cryptocurrencies. They can use crypto while devouring entertainment, exploring social media, tapping into decentralized finance, connected virtual reality games, or even finding love on the internet.

According to Wells Fargo’s global investment strategy team, the entire crypto market and cryptocurrencies in particular are in a period of “hyperadoption”.

It’s a sign of the impending Web3 revolution that will define how humans will consume in the future.

The crypto winter will soon thaw

Many experts echo this sentiment and believe that cryptocurrencies are still in the nascent stage of user adoption, comparable to the internet boom during the 1990s. Internet users grew phenomenally despite a bubble, which ultimately led to the demise of many businesses that could not sustain their operations.

Since then, players such as Amazon, NetFlix, Ebay and their ilk have morphed into multi-billion dollar entities with mainstream prominence. Extending this to the current crypto market, governments today are trying to develop frameworks for the entire crypto ecosystem. Self-regulation by mature crypto firms helps thwart malicious cyberattacks by crippling investor confidence.

Judging by these facts, it would be prudent to conclude that the current phase hints at a period of healthy consolidation. This is not a debilitating crypto winter, as perennial crypto critics portray it.

About the Author

Crypto Winter is thawing.  History Tells Us Crypto Prices Will Rebound

Baig Khaleelulla is a Fintech entrepreneur with over a decade of experience in insurance, stock brokerage, wealth management technology and crypto assets. Building scalable investment technology products and bringing them to market is his forte. As a startup founder, his skills include spotting emerging opportunities, time-bound MVP development, product launch, growth marketing, and user engagement. Baig is an alumnus of the prestigious Indian Institute of Management (IIM) Calcutta (EPBM – Business Administration and Management, General: 2005-06).

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