After 12 years, the cyclicality of digital assets is completely clear. This market is prone to periods of excessive hype punctuated by lulls that could last years. The community calls these periods of range bound price movements “crypto winter.” Now that nearly every digital asset is trading below its all-time high and seems trapped at lower levels, it may be worth considering whether we’ve entered another crypto winter.
Here’s an overview of all the signs that the market is consolidating and a look back at how long previous crypto winters were.
Signs of Crypto Winter
Price action is usually the best signal of a crypto winter. At the time of writing, Bitcoin and Ethereum are trading at roughly half their all-time highs. The entire digital asset sector is collectively worth $1.6 trillion, 33% lower than its all-time high from a few months ago.
Another signal is the market’s lack of response to catalysts. The ongoing Bitcoin 2021 conference in Miami has seen major updates from industry leaders such as Jack Dorsey and Michael Saylor. However, the event hasn’t had much impact on mainstream enthusiasm for digital assets.
Investment bank Mizuho recently warned of a “crypto winter” that could drag down Coinbase’s stock price, indicating that this phenomenon was on their radar. Another signal that we’ve entered a cold period in digital assets is the fact that heavyweight developers and decentralized autonomous organizations (DAOs) are diversifying their assets. This is usually seen as an indication of crypto winter.
The most recent crypto winter extended two years, from mid-2018 to mid-2020. A regulatory clampdown eroded market value in 2018. The market’s aggregate value dropped from $800 billion in 2018 to just under $150 billion by March 2020, when the rise of coronavirus created a panic across risk assets.
Earlier winters lasted relatively longer. Bitcoin’s price plummeted tremendously with the collapse of Mt.Gox in 2014 and wouldn’t recover until the hype cycle of 2017. That cycle was roughly three years.
While the market is notoriously difficult to predict, this boom-bust pattern is somewhat evident. If history repeats itself, Bitcoin may not reclaim its all-time high for at least two or three years. Investors and developers may have to wait until then for fresh capital to flood into the industry, pushing adoption higher.
Some asset classes are cyclical. They go through periods of boom-and-bust. Real estate, gold and commodities are good examples. Bitcoin seems to be displaying a similar pattern. Bust cycles, like the one we may be experiencing now, destroy tremendous value and could last two to three years. If history repeats itself, digital asset investors and developers may have to wait until fresh capital and adoption enters the market.
That being said, this time could be different and the market could rebound sharply relatively sooner.