Is Crypto Winter Approaching? Bitcoin Drops 50% from its All-time Highs

Some crypto investors believe the worst is yet to come as a result of the steep sell-off in Bitcoin and other virtual currencies.

Bitcoin, the world’s most popular virtual currency, fell below $33,000 on Monday, reaching its lowest point since July. It has subsequently rebounded beyond $36,000, yet it is still down about 50% from its all-time high of nearly $69,000 in November 2021.

Nevertheless, since Bitcoin’s record high, the whole cryptocurrency market has lost more than $1 trillion in value, as top tokens like Ethereum and Solana have followed the number one virtual currency to trade dramatically lower. Since its high in November, the value of Ether has more than halved, while the value of Solana has plummeted by 65 percent.

Some cryptocurrency investors are now speculating about the potential of a “crypto winter,” a term that refers to big bear markets in the virtual currency market’s short history. The most recent instance of this occurred in late 2017 and early 2018 when Bitcoin fell by up to 80% from record highs.

The former head of cryptocurrency at Facebook-parent Meta, David Marcus, seemed to admit that a cryptocurrency winter has already arrived. “It’s during crypto winters that the best entrepreneurs build the better companies,” he remarked in a tweet on Monday. He also mentioned that it is time to get back to tackling genuine problems rather than pumping tokens.

Nadya Ivanova, chief operating officer of L’Atelier, a BNP Paribas-affiliated digital research business, said the market is currently in a cooling-off stage, but she isn’t confident a crypto winter has arrived yet. She suggests that this might not be such a horrible idea.

Furthermore, Ivanova mentioned, “Over the last year — especially with all the hype in this market — a lot of developers seem to have been distracted by the easy gains from speculation in NFTs (non-fungible tokens) and other digital assets. A cooling-off period might actually be an opportunity to start building the fundamentals of the market.”

Crypto’s decline has coincided with a drop in world markets. According to experts, major institutional funds’ engagement has caused digital assets to become more linked with traditional markets.

Since the beginning of the year, the S&P500 has lost eight percent, while the tech-heavy Nasdaq has lost over 12%. Furthermore,  the correlation between Bitcoin’s performance and the S&P500 has been increasing in recent months.

Traders are concerned that aggressive monetary tightening and prospective interest rate hikes by the Federal Reserve may deplete market liquidity. In response to rising inflation, the US central bank is contemplating such moves, and some analysts believe it could signal the end of the era of ultra-low interest rates and sky-high valuations — particularly in high-growth sectors such as technology, which benefit from lower rates because companies frequently borrow capital to invest in their businesses.

Ivanova also mentioned in respect of Bitcoin’s recent drop: “I think it’s related to the rout and withdrawal from risky assets overall.”

The latest crypto dip, according to Vijay Ayyar, vice president of business development and international at crypto exchange Luno, is more of a “correction” than a persistent decline.

According to him, Bitcoin frequently sees “blow-off tops” before plunging by 80 percent or more. This is a chart pattern that depicts a rapid rise in price and trading volume, followed by a rapid drop in price.

He said that Bitcoin corrections typically range from 30 to 50 percent, which is where we are now, so we’re still inside the normal correction zone.

He sees $30,000 as a crucial threshold to watch for Bitcoin in the future. “That would definitely indicate a high likelihood of a bear market if it closes below that point in a week or more,” he said. A price of less than $15,000 would signify a drop of nearly 80% from Bitcoin’s recent high. Ayyar does not believe such a scenario is possible.

Nonetheless, investors are concerned about the possibility of more governmental restrictions on the crypto business. Last week, Russia’s central bank suggested prohibiting the usage and mining of cryptocurrencies, emulating China’s same step. The US government is also said to be prepared to reveal a crypto regulation policy as early as next month.

Summary

  • Bitcoin, the world’s most popular virtual currency, fell below $33,000 on Monday, reaching its lowest point since July.
  • It’s now rebounded beyond $36,000; however, it is still down about 50% from the November peak of nearly $69,000.
  • Some cryptocurrency investors are speculating about the likelihood of a “crypto winter” as a result of this.
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Author: Jason Donaldson