Crypto winter is not only about low Bitcoin prices — it also implies decreased market activity, the collapse of seemingly successful projects, and negative investor sentiment. A protracted market decline leads to billions of losses and mass pessimism regarding the future of crypto.
Let’s explore what’s happening in the market and try to find an optimistic note in these tough days.
One Step Back
2021 was finishing with a strong bull run and an overheated market. The crypto prices were skyrocketing, and so was the greed index. Digital art items were being sold in auctions for millions of dollars, and crypto companies could afford more than $6 million for 30-second ads on Super Bowl. The looming pullback was inevitable, but many investors were euphorically overlooking it.
How the Winter Came
A sharp decline of crypto prices began after the November 2021 peak. It was first an anticipated market correction — and it was too early to speak of any long-term drawdown yet.
The term “crypto winter” popped up in May 2022 as the suffering market began to collapse — major crypto platforms were crashing one after another, even those that seemed exceptionally resilient. The greed index transformed into the fear index going off the charts, and investors started seeking some haven for their funds. It became clear that this time, the recession is going to last long.
The retail market and the cryptocurrency payments domain also experienced this wave of fear, but in a different way. “Our merchants and their customers are increasingly using stablecoins on all blockchains. This is easy to understand — stablecoins allow them to avoid volatility risks,” says Seraphima Verhoeven, CMO of NOWPayments. She points out that stablecoins’ transaction speed is much faster compared to Bitcoin. “The vast majority of our transactions are in stablecoins, and their volume is increasing,” Seraphima concludes.
3 Major Signs of the Current Crypto Winter
Crypto winter is a dramatic decline of crypto prices from their previous peaks that persists for a long time. There are also some other signs of this cold season — let’s take a look.
After hitting their all-time highs in November 2021, Bitcoin and Ethereum were collapsing during the whole year of 2022 and ultimately lost 64.2% and 67.4%, respectively. The gross cryptocurrency market capitalization dropped from $3 trillion to $820 billion.
In Q2 2022, the two largest digital coins suffered a record-fast price decline. The yearly low was registered at $15,476 for Bitcoin and $881 for Ethereum.
Other assets that lost 90%+ of their capital include Solana, Fantom, Axie Infinity, Sandbox, Gala, and many others. All DeFi tokens from the Top-20 finished the year with at least -60%.
Crypto platforms’ collapse
2022 wiped out some of the most renowned crypto platforms. A few waves of bankruptcies shook the market and triggered mass liquidations. First, it was Terra and its stablecoin UST that went to zero in May, then Three Arrows Capital, Celsius Network, and Voyager tumbled in the summer, and finally, FTX & Alameda Research went bust in November.
Billions of users’ and venture capitalists’ funds were buried by greed, irresponsible management, and investing in high-risk protocols. For instance, FTX was one of the most respected platforms out there and had drawn over $1 billion of investment. It collapsed overnight once the community learned: the exchange was abusing user money and hiding the fact from high-ranking managers.
Besides many users’ life savings being lost, there’s another problem with these collapses. People’s trust in crypto and responsible management has declined, while reputation is something that is very hard to regain.
Decreased on-chain activity
The market of dApps suffered a severe decline in 2022: its TVL (total value locked) dropped by 75% and reached $59 billion in December.
Low trading activity resulted in reduced average network fees. Bitcoin miners earned $142.2 million on them in 2022 — this is only 14% of $1 billion they had made in 2021.
When Will the Crypto Winter End?
Those who publish their forecasts with blunt confidence are either ignorant or intentionally want to mislead. No one knows when the crypto winter ends and what will serve as a trigger for market recovery.
Some skeptics say that crypto is done and will possibly not ever regain its value. However, they say the same after every significant price crash.
Others offer a more weighted prediction. For instance, Nansen Research emphasizes correlation between cryptocurrency and traditional finance. As institutional investors had entered the digital coins’ market in the last few years, crypto prices began to reflect the dynamic of the economy in general. According to Nansen, the “key scenario” for 2023 is recession in the USA and a US equity selloff — that’s why cryptocurrencies may suffer from one more, “perhaps final”, price drop. When the Fed interest rates are decreased, the crypto market may recover.
Are People Giving Up On Bitcoin?
As on-chain data suggests, the number of Bitcoin wallet addresses with at least 1 BTC on them grew by 20% in 2022. It increases exponentially and will hit 1 million soon. This is a positive sign — the number of market participants rises and the funds are accumulated by those who believe in the long-term potential of Bitcoin.
Here’s another piece of data: Bitcoin’s hashrate increased by almost 50% even amid the price drop. This may be explained by the introduction of new powerful mining equipment, but also by the confidence of miners in the value of digital gold.
Crypto payments are on the rise, too
Despite the overall market stagnation, users continue to pay with crypto for goods and services — and this inspires hope. In the midst of this cold season, NOWPayments has seized an opportunity to grow.
“Over the past year, our turnover measured in BTC has increased 11 times, but even more notably, the transaction count has surged 6-fold,” shares our CMO. “Crypto is and has always been a great means of payment, available anywhere in the world — all you need is an internet connection. Digital money is free from geographical restrictions.”
Seraphima emphasizes: NOWPayments continues to grow and expand the range of services it delivers. “We offer 16 payment tools apart from our API solutions, and their integration is completely free.”
It Appears Promising If You Look Global
These numbers reveal one simple fact — people are not giving up on Bitcoin. The current crypto winter reminds of the dot-com bubble: in the late 1990s, there was a huge buzz around the newly born Internet, and even low-quality projects were pumping. The fact of using the internet technology seemed to matter more than the actual value of the service.
Since the last crypto winter that ended in 2019–2020, developers have created many crypto projects that — just between us — don’t have any real-world value. They can only grow in favorable conditions — and crypto winter is likely to eradicate many of them. After the dot-com crisis, there was a period when nascent internet companies began taking what they do more seriously and offering real value that made billions of lives worldwide better. We hope that cryptocurrency will offer the same, and step by step, we will move past this crypto winter.