Should Retail Investors be worried about another Crypto Winter? By Viktor Prokopenya, London based Investor and FinTech Entrepreneur
Disclaimer: The text below is a press release that was not written by Cryptonews.com.
The recent drop in value of cryptocurrencies has caused traders, commentators and investors alike to speculate that we may be entering into another ‘Crypto Winter’. Characterised by the price of digital assets plummeting by 70 – 95%, the onset can cause the same sense of dread and darkness as its seasonal namesake.
The last time cryptocurrency faced a ‘winter’ was when bitcoin value peaked at approximately USD 19,000 in the December of 2018. What followed was a slow decline (albeit one with short bursts of activity) that ended with the digital asset languishing at approximately USD 6,600 by mid-December of 2019. Across this period, the value of bitcoin fell 84%. This had a subsequent domino impact across the market, as most altcoins (any digital coin or token that is not a bitcoin) followed suit and saw their value plummet too.
But after winter must come spring. The COVID-19 pandemic and subsequent global economic uncertainty began to thaw the prolonged period of slump, and the value of bitcoin increased by 416% during 2019. This was a clear sign that cryptocurrencies were breaking out of the freeze they had been facing.
The bitcoin bull market continued into 2020 and well beyond, with bitcoin reaching a peak of USD 63,000 in April 2021. This was surpassed again in November 2021, when the value of bitcoin increased again to an all time high of USD 68,990.90.
However, since then, the value of bitcoin has shrunk dramatically. At the time of writing, bitcoin is valued at only USD 24263.00. This gradual decline has resulted in whispers across the industry that once again, winter is here.
But what do these rumours mean for retail traders of cryptocurrencies, or for those who may be looking to start investing in digital assets?
Firstly, the current deflated value of bitcoin could simply be because of wider global volatility, and not an indication that a more prolonged downturn is imminent.
But, even if winter is coming, that does not mean retail traders should panic. Indeed, some crypto experts have highlighted the positives of prolonged periods of flat trading. For example, the founder of Ethereum, Vitalik Buterin, told Bloomberg in February of 2022 that “the winters are the time when a lot of those applications fall away and you can see which projects are actually long-term sustainable, like both in their models and in their teams and their people”.
In other words, a slump may allow for the industry to go through a period of self-improvement.
This same principle of self-improvement can be applied to retail traders too. Periods of inactivity present an excellent opportunity for reinvestment in other areas, such as increasing one’s trading knowledge and skill.
Trading apps and platforms can play an important role in assisting in the growth and development of financial literacy. This is something built into our approach at Capital.com, with educational tools embedded into our user experience.
These tools can be vital in improving and expanding a trader's knowledge and importantly, their confidence. Our Investmate App, or the in-app guides on concepts such as Contracts for Difference offer the opportunity to nurture our customers skills. After all, a trader who takes the time to expand their understanding of how best to utilise leveraged trading could find it is the key to increased successes in the future.
However, it is important to note that a crypto winter is by no means inevitable. There are indications that we may be approaching a ‘crypto summer’ instead. For example, interest from mainstream companies in crypto and blockchain technology is a positive sign for the industry; in the United States, AMC entertainment now allows for payments via bitcoin, and Paypal and Square now allow for the purchase of bitcoin via their platforms. Corporations like Amazon and Walmart are also looking to hire crypto experts, indicating they may be expanding into the space soon. The more ‘real world’ uses for cryptocurrency, the better the future looks.
Bitcoin and other cryptocurrencies are still young. Like most things in their infancy, they are unpredictable, and the headline grabbing decisions pertaining to crypto are being undertaken for the first time. Take El Salvador’s decision to postpone their USD 1 billion bitcoin-backed bond offering due to "unfavourable conditions". The choice seems short-sighted and a missed opportunity, as the influx of FDI despite low bitcoin prices would have set a global precedent for innovation in national-level fiscal management. But, as this has not been attempted before, these cautious approaches to innovation should not be read as a sign that crypto is about to enter a decline.
Indeed, El Salvador are still powering ahead with other bitcoin innovations. ‘Bitcoin City’ is still in the pipeline, with plans ongoing to create the world’s first smart city that will be entirely based on bitcoin as a cryptocurrency.
Despite the volatility of the crypto market, the core innovations such as blockchain technology are here to stay, and the opportunities for retail traders to take advantage of these technological developments should not be overlooked.
Slumps and winters (if and when they do arrive) should not be something for retail traders to fear. Periods of inactivity may be exactly what is needed if individuals are to successfully take stock. After all, building up a knowledge and understanding of the assets available to them will only play into future successes. The last true crypto winter was followed by a hugely successful spring, and traders would be wise to remember this.