Crypto Winter Rumors: Experts Say Increased Adoption May Temper Outcomes
Cryptos have been crashing down since the beginning of the year, re-igniting noises about a potential crypto winter. However, several experts don’t agree with this premise and point to differences with previous crypto winters — notably that of 2018 — saying that this time around, increased adoption will help temper the current bear market.
Since hitting an all-time high of $69,000 in November 2021, Bitcoin has suffered from one of its biggest drawdowns — the 52.3% decline from the peak thus far ranks 6th in bitcoin’s history, according to a NYDIG report.
“This is a strikingly similar decrease and duration as the drawdown exhibited over the spring of 2021, with the caveat that this drawdown could continue to grow larger. Bitcoin’s largest three drawdowns were also its longest, coinciding with the end of cyclical price rises.”
Some experts believe we already have entered another so-called crypto winter, including David Marcus, former head of Novi at Meta, who tweeted on Jan. 24 that “it’s during crypto winters that the best entrepreneurs build the better companies. This is the time again to focus on solving real problems vs. pumping tokens.”
While many investors are reeling from their losses, not everyone agrees that the current situation can be compared to the crypto winter of 2018, when Bitcoin fell more than 75% from previous peaks, according to Barron’s.
Josh Olszewicz, head of research at Valkyrie Funds, told GOBankingRates that the drawdown in this market may be similar to the one we saw in 2018, and a correlation to the specter of rising interest rates is notable, but the market is not the same as it was back then.
“Venture capital inflows tallied a record $33 billion last year, and a lot of these investments are being made in the pipes building the financial system of the future,” Olszewicz said, adding that Bitcoin, for one, has been adopted by El Salvador as legal tender — and many other countries are considering making a similar move.
He noted that another point of difference is that there are several spot Bitcoin products trading on-exchange outside the U.S., in addition to Bitcoin futures exchange traded funds and other ETFs. These offer indirect exposure to Bitcoin trading in the U.S., alongside the many companies that hold Bitcoin in their treasuries, which he describes as “a massive leap forward for digital assets.”
“Sure, things look a bit grim right now, but the stage is hopefully set for a strong recovery and we remain far more optimistic that this is merely a correction before the consolidation that leads to a recovery sooner than many expect,” he added.
Reeve Collins, co-founder of BLOCKv, also told GOBankingRates that a crypto winter this time around will probably look very different from the last, in large part because the space has grown not just in size but also functionality and participating players.
“The things that crypto can do now — banking without banks with DeFi, NFTs, even fun games — would blow away the OGs from the last cycle of 2017-2018,” Collins said. “So even if we see big price drawdowns, the building out of really useful projects in the cryptoverse will continue apace and, in turn, will spur even more adoption. So for most people, including investors, I think it’s good to zoom out, not get too scared about volatility and focus on quality projects. This moment, when we look back in time, will be seen as a crypto spring.”
The sentiment is echoed by many in the industry who believe that this crash mirrors that of last May, where prices recovered in only a few short months, including Josh Goodbody, COO of Qredo, who told GOBankingRates that it is unlikely that this will be another prolonged “crypto winter” and is more likely to be a period of short-term bearish sentiment.
“The price action is a distraction from the fundamental mission — that we are rebuilding the financial industry and changing the way the internet works. It is going to take a lot more than a quick sell-off to take us back into a crypto-winter,” Goodbody said.
More from GOBankingRates: