Financial and Monetary Systems

The ‘crypto winter’ is here. But what is it and what does it mean for the wider economy?

what is a crypto winter

The crypto winter is here. Image: Unsplash/Maxim Hopman

Simon Read
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  • The cryptocurrency market is in turmoil, with steep price falls across the sector.
  • Industry leaders are warning of a “crypto winter”, with prices staying low for a long time.
  • Major crypto exchanges are firing staff and freezing recruitment.
  • But some remain confident in the sector’s longer-term future.

Cryptocurrency prices have been crashing this year, with the digital currency market proving vulnerable to the global economy’s wider problems. This has led some in the industry to declare the arrival of a “crypto winter”.

A “crypto winter” basically means that prices have dropped a long way and then stayed low for weeks or months. The signs are everywhere – the failure of the TerraUSD crypto project this May sent an icy blast through the market, then the cryptocurrency lending platform Celsius Network halted withdrawals, prompting a sell-off that pushed Bitcoin to a 17-month low.

Cryptocurrency turmoil has led to crypto winter

Crypto exchanges such as Coinbase and Gemini – which allow investors to trade digital assets – have announced job losses. Coinbase will cut 18% of its workforce, while Gemini’s bosses have warned of tough times ahead. “This has all been further compounded by the current macroeconomic and geopolitical turmoil,” they say. “We are not alone.”

Other contributing factors to the crypto winter, according to market analysts, are high inflation, rising interest rates and the financial turmoil that has followed Russia’s invasion of Ukraine. Crypto markets had soared in late 2020 and in 2021, partly because the US Federal Reserve was pumping so much money into markets in response to the COVID-19 crisis. But with central banks tightening monetary policy, that’s over.

“When the liquidity is pulled from the markets, the most speculative assets are hit the hardest,” Robert Johnson, Professor of Finance at the Heider College of Business at Creighton University, told Forbes. “I would say that there is no more speculative asset class than cryptocurrency.”

Cryptocurrency versus inflation

The downturn has got many thinking about how cryptocurrency fits into a world where inflation is rising fast.

Crypto’s big moves in 2021 led some investors to believe it could provide protection against inflation – but that’s now in doubt, says digital bank Ally’s Chief Markets and Money Strategist, Lindsey Bell.

“Some investors are already using Bitcoin and other cryptocurrencies as a hedge against inflation,” she says. “This could prove to be a savvy move, but that remains to be seen for now because it is such a youthful investment asset class. Its risk is less understood and more difficult to compare with other securities.”


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There have been five crypto winters since 2017 and three since 2021, Reuters reports, but opinion is divided on how long this latest one will last.

Despite heavy losses this year, there are some signs that Bitcoin – the first widely established cryptocurrency and still the most dominant – is “plotting its comeback”, according to Reuters. “Institutional investors particularly are fleeing to safety, to a certain extent, to Bitcoin,” Marcus Sotiriou of UK-based asset broker GlobalBlock says.

A chart showing crypto winters
Bitcoin has recovered quickly after past crypto winters. Image: Reuters

Some analysts believe this crypto winter will be less severe than previous freezes, partly because corporates and financial institutions have entered the market. These institutions have built up the technology, staff and legal arrangements they need to invest in crypto, meaning they have the infrastructure for future transactions, even if they are selling now.

Where next for crypto?

Farran Powell, editor at Forbes Advisor, says that this crypto winter is a lot like a conventional bear market, pushing weaker start-ups out of business and giving stronger companies the chance to “mature and prove their products”.

Powell quotes Jake Weiner, CEO of cryptocurrency hedge fund Uncommon, who believes some companies are in a strong position. “Unlike past crypto winters, a lot of crypto [venture capitalists] have already amassed war chests that they will continue to deploy.”

But others are more negative. The Wall Street Journal says the crypto market was “built in part on swagger, enthusiasm and optimism”, all of which are evaporating amid wider economic problems.

And Bloomberg says it will be hard for investors to decide which cryptocurrencies will survive or emerge strongly from this downturn, although some are viewing the crash as a chance to buy in at a lower price.

Given the slump expected in the wider economy, it may be a while before we see whether another crypto summer follows this crypto winter, or if digital currency has entered the ice age.

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