Heralded as a “crypto winter,” a temporary correction to a bubble, the crypto reversal that began in late 2021 continues. And we are still struggling to see the light at the end of the tunnel in early 2023.
After the boom, the crash. Known for their volatility, cryptocurrencies have not disappointed in just over 12 months. We initially believed in a “crypto winter,” a cold snap on cryptocurrencies that had been running hot until then. But, initially announced as temporary, the episode seems destined to last over time. A “crypto winter” that turns into the ice age.
Between the end of 2021 and the state of the market in January 2023, a world collapsed. At the time, prices were at an all-time high. A first, quite gradual decline took place between November 2021 and January 2022. After the recovery up to April, the price suddenly fell. The particularly brutal collapse occurred in three phases: April, May and June.
Over that time, cryptocurrencies have lost, on average, more than half of their value. Benchmark Bitcoin saw its value fall more than 73% between November 2021, an all-time high, and the end of December 2022. Its price fell from over $58,000 per unit to just over $15,000 in the 13-month period. And the long-awaited rebound is long overdue. To the point that some wonder if it will one day take place. This is what is now called the “cryptocollapse”. An unprecedented phenomenon that is accompanied by the sudden disappearance of platforms specialized in trading these securities; behemoths like Celsius, Three Arrows Capital, or even FTX, which has had a lot of ink flowing.
Crypto Winter: The End of Cycles?
Until this last crash, particularly brutal and long, digital assets, Bitcoin in the lead, had already experienced several reversals of fortune in the past. That is why the current phenomenon, which was thought to be similar to the previous ones, was first dubbed “crypto winter”, characterized by a few months of price corrections… to rebound even stronger and higher just behind.
The first such episode happened in February 2011, when virtual currencies were just emerging. Bitcoin, born in 2009, went from $1.06 to $0.67 in just a few days. A drop of almost 40% which prompted the most pessimistic to declare this virtual currency dead. Just a month later, however, Bitcoin flirted with $30… only to fall back to $2.14 in November of the same year. Again, we have predicted its imminent end. On the contrary.
By the end of 2013, the value of Bitcoin had skyrocketed to over $1,200. But in January 2015, a new crypto winter appeared. At minimum, the price was $180. There was talk then of speculative bubbles. It wasn’t until 2018, when yet another Bitcoin crash really caused a stir for the first time, that the term “crypto winter” caught on. The previous year, Bitcoin had gone from $900 to nearly $20,000 in just a few months. Enough to encourage, for the first time, the general public to run on this “magic money”.
Sadly, as of February 2018, its price has dropped by 65%. The rush for bitcoin turns into a stampede. By the end of that year, the digital asset market as a whole had lost 80% of its value compared to the end of 2017. Goodbye dreams of retirement on an island paradise at just 30. Those who had invested all their fortune hoping to find a real martingale only had eyes to cry.
And then things went back to normal. And, with the rise of Web3 and the metaverse, prices have taken off again. The general public once again firmly believed in it. It was now or never. Until the new trend reversal at the end of 2021. Since then an unprecedented phase has taken hold. From June 2022 through early 2023, the market was abnormally slow, aside from another small dip last November with the FTX bankruptcy.
The existential crisis of cryptocurrencies
The drop in the price of virtual currencies, Bitcoin and Ether in the lead, while the decentralized Internet was in the spotlight of the entire planet, abruptly ended the promise of a new world. A virtual, shared world where Gafam would no longer have all the powers but where, on the contrary, each individual would regain control of their data… and could develop value through their own avatar and dematerialized wallet.
“We are at an existential crossroads for the sector. »
The collapse of cryptocurrencies; the metaverse struggling to become tangible and believable despite the tens of billions invested by Mark Zuckerberg’s Metaverse; the almost unlimited investments of big brands to build digital empires on virtual textures purchased at exorbitant prices; and even the arrest in the Bahamas of Sam Bankman-Fried, the head of FTX suspected of massive fraud… So many reasons to question everything. “We are at an existential crossroads for the industry”analyzed Yesha Yadav, a law professor specializing in cryptocurrency regulation in the columns of the Washington Post. Adding that the market was currently trying to determine “what is the extent of the current gangrene”.
2023: the year of consolidation?
The failure of cryptocurrency trading giants, FTX and its sulfur boss in mind, calls for caution. This is proof that the famous “too big to fail” isn’t always true. And that the digital asset industry is still sorely lacking in stability. The market needs to be cleaned up and consolidated for everything to regain some credibility in the eyes of the general public… and financial investors. We also need more transparency.
It is therefore entirely possible that the sector will equip itself, as is the case with the traditional financial industry, with tools for monitoring these platforms (credit scoring, insurance, etc.) so that unforeseen failures do not recur in the future. At the same time, the other platforms are hunkering down… and cleaning up. Therefore, Crypto.com and Coinbase just announced that they would be laying off 20% of their employees. Most players are screened to assess the severity of their cash shortage.
Whatever happens, given the current global economic situation, “we expect the current situation to continue at least in the first half of 2023”explained John Avery, head of strategy and products for cryptocurrencies, Web3 and capital markets for the American financial services company FIS.
The decline is therefore probably not over. But the potential is still there. The price of the top 100 cryptocurrencies is still up 2,000% from 2016, on average. Most importantly, blockchain technology and everything that comes with it remains as much of a revolution in the making as ever. The value this can create in the years to come is very real. According to analysts, the rebound could finally take place in late 2023 or early 2024. The ice age is therefore still far from over. And digital assets are still really in turmoil at the moment. For active cryptocurrency holders, more than ever, “patience is the mother of all virtues”.