What is Crypto Winter? Advantages & Disadvantages
If you’ve watched the crypto markets over the past few months, you’ve undoubtedly seen the term crypto winter.
Do you have questions about what a crypto winter is? Are we in one now?
We’ll explain a crypto winter, its advantages and disadvantages, and some investment strategies to help you survive them.
Related: How to Invest in Crypto (Without Buying Cryptocurrency)
What Is Crypto Winter?
Crypto winter is a term used to describe a poorly performing cryptocurrency market. It is comparable to a bear market in stock markets.
Crypto winters occur when prices fall across many digital currencies, remain low for an extended period, and are accompanied by negative market sentiment.
The last crypto winter started in December 2017 when Bitcoin hit $20,000, then it fell more than 80% by the close of 2018. The 2017 crypto winter ended in mid-December 2020.
The previous crypto winter happened in 2014 when Bitcoin traded for $1,000 in January 2014. The prices dropped the next day. Bitcoin didn’t hit $1000 until February 2, 2017.
In 2022, Bitcoin dropped 66% since it hit its all-time high of almost $69,000 on November 10, 2021.
When Does Crypto Winter Start?
There is no true definition for when a crypto winter starts. In the past, crypto winters began with a drastic sell-off from an all-time high for the price of Bitcoin.
With that as the standard for when crypto winters start, here are the start dates for the last three crypto winters:
- January 2014
- December 2017
- November 2021
How Long Do Crypto Winters Last?
If we look to the crypto winters of the past for some guidance, the news isn’t encouraging for when this crypto winter will end.
When we define the end of a crypto winter by when Bitcoin gets back to its previous all-time high, here’s what we see:
- The 2014 crypto winter lasted over three years, from January 2014 to February 2017.
- The 2017 crypto winter lasted from December 2017 to December 2020.
According to the length of the last two crypto winters, we’re looking at another two+ years until this crypto winter ends.
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However, just because the last two crypto winters lasted three years is no guarantee that this one will. Nevertheless, it does give us an idea that, historically speaking, crypto winters can easily last for a year more.
The Advantages of Crypto Winter
Investors look at crypto winter much like they would any bear market in other asset classes. The longer the crypto winter goes on, the younger companies and start-ups will be weeded out.
At the same time, more stable, mature companies will have more time to prove and improve their offerings.
With low crypto prices, it’s also a good time for investors to buy the dip. With the hopes that when the crypto winter ends, they will experience the same explosive growth we’ve seen in the past.
The Disadvantages of Crypto Winter
Crypto winter’s disadvantages are similar to a bear market. Trillions of dollars of market cap have been lost.
Many individual investors and investment companies have been wiped out in the aftermath.
Promising start-ups with emerging technologies have been shuttered. Layoff numbers in the crypto industry continue to rise.
Related: Crypto Crash – How To Navigate a Downturn
Tips for Surviving Crypto Winter
With an eye on this crypto winter lasting for a while, here are some ways that you can hunker down and survive it.
Diversify Your Holdings
Diversification is one of the first investing rules, even in good times. That adage might be even more true in tough times. Don’t only look to diversify your holdings, but where you hold them by using different exchanges and wallets.
Get Back To Basics
Downtimes are a great time to step back and take a lot at what you’ve been doing to see what’s worked and hasn’t. If you don’t understand the principles and technologies behind the crypto industry, this is the time to learn them.
Use Dollar-Cost Averaging to Reduce Your Risk
As a rule, dollar-cost averaging (DCA) works well for investors with a lower tolerance for risk. Instead of investing lump sums, you invest the same amount of money at regular intervals over a longer period, regardless of the price. Look for DCA coins with good fundamentals and a community that continuously works on their protocols.
Don’t Panic Sell
We’ve mentioned that crypto winters generate a lot of negative sentiment about investing in crypto. During every crypto winter in the past, someone has cried out that the crypto is dead.
Yet, here we are into our third crypto winter, and crypto is still here. Crypto might be a volatile investment, but it is still an investment.
Staking is locking your crypto on a crypto exchange or crypto-lending platform for a set time to assist in the operation of a blockchain while you earn interest. What it lacks in liquidity, it can make up for in stability.
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The Crypto Winter is Here But For How Long?
Most experts agree that we’re now fully into a crypto winter. It’s the third crypto winter in eight years, but the crypto markets have experienced exponential growth in between them.
The past two crypto winters have lasted about three years. Still, crypto is such a dynamic and volatile investment that it could turn around in a number of weeks.
Crypto winter is a time of contraction for the industry. When it’s over, there will be fewer players in the crypto industry, but the ones remaining will have more time to improve their products.
There are many investment strategies investors can choose, depending on their solvency and tolerance for risk.
There may be dark days ahead for the crypto industry. But if history has shown us anything, it is that when the crypto winter ends, the crypto spring is glorious.