Crypto Winter is Thawing. History Tells us That Prices Will Bounce Back

Crypto winter? Pfft. Bears will not last, despite those furry menaces gripping the crypto market since late 2021. Remember, cryptocurrencies have bounced back sharply in the past, says Khaleelulla Baig, CEO of KoinBasket.

After peaking at ~$18,000 in December 2017, Bitcoin (BTC) lost nearly 80% of its value in the ensuing 12-month period. This was only to resume its upward journey since and scale new highs.

With the COVID-19 pandemic ravaging traditional markets across the world in the first half of 2020, investor focus shifted. The new focus was the burgeoning cryptocurrency market and this was reflected in BTC’s meteoric rise from ~$5,000 in March 2020 to $68,990 in November 2021.

And yet. Recently, BTC and the broader crypto market has been in a prolonged bearish phase, also known as ‘crypto winter’ ever since. There are more than 300 million crypto investors across the world today. Many are understandably worried about the future. But it does help to look at how cryptocurrencies have fared previously. Let’s look at how new-age asset classes behaved during their early-stage adoption days.

Crypto winter: Taking comfort from 2018

BTC and Ethereum (ETH) took nearly two years to recoup losses from their December 2017 high. Despite this, BTC and other major cryptocurrencies like ETH have been one of the best-performing assets across all markets since the onset of the COVID-19 pandemic.

While the S&P500 has bounced by ~70% since its March 2020 bottom, BTC has appreciated by ~450%. ETH has returned more than 1200% in the same period. This is despite both cryptocurrencies correcting by over 50% from their all-time highs (ATHs). It is indicative of the exponential rise in investor interest.

In fact, BTC has gone through four different bear cycles even before the 2018 crypto winter. It has smartly rebounded every single time before reaching a new ATH.

Additionally, these bear cycles have lasted between three months to as long as a year, before the onset of the next bull phase, which drove crypto adoption and cryptocurrency prices higher. Long-term value investors will find this fact extremely comforting, even though volatility continues to be rife across the entire basket of cryptocurrencies available today. As long as you have a long-term investing horizon, blue-chip cryptocurrencies have never failed to generate market-beating returns, when analyzed over a five-year period.

Rapid digital adoption powering crypto applications

With the COVID-19 pandemic restricting many people to their homes, the digital economy received a major fillip and has never looked back ever since. Even after economies across the globe re-opened, consumers have been lapping up new experiences and are increasingly consuming via the internet.

The rise of blockchain technology-powered applications, digital assets, platforms and a thriving global crypto community is a classic example of this tectonic change in consumer preferences. Building the foundation of a new iteration of the internet, Web3-focused start-ups have already innovated digital assets like non-fungible tokens (NFTs). They are introducing a global audience to a more democratic way of transacting on the internet today.

This has led many experts to believe that this trend will only gain further pace. It has even spurred Web2 companies like Meta to double down on their investments in the Web3 space. In terms of user adoption as well, a collaborative study conducted by BCG, Bitget, and Foresight Ventures has estimated that the number of crypto users will more than treble to one billion by 2030.

Assuming that this number will be a proxy to users interacting in a Web3 world, it would be safe to assume that demand for cryptocurrencies and other crypto assets will also see a positive rub-on effect.

Increasing investments in crypto firms signaling bright prospects

At the peak of the crypto boom in November 2021, the overall cryptocurrency market capitalization had surpassed the $3 trillion mark and coincided with the highest number of investments being made in crypto-based firms.

According to an analyst at JP Morgan, 2021 saw $32.7 billion of venture capital (VC) investments in crypto and blockchain-based start-ups, with more than 1,000 separate deals and companies involved. So far for 2022, this number stands at more than $18.3 billion. This belies cries of crypto critics calling the current bear cycle to be the final capitulation of the cryptocurrency market.

If anything, increasing investments only serve to underscore the confidence displayed by entrepreneurs and corporates alike in the promise of Web3. It also serves to highlight the rapid pace of development being carried out within the crypto industry. It should eventually translate into a resumption in the long-term bullish trend, with regards to the prices of fundamentally solid cryptocurrencies in the near future.

Comparing cryptocurrencies with the early stage of the Internet

People across the globe are increasingly preferring to experiment with new technologies and transact using digital assets like cryptocurrencies. They can use crypto while devouring entertainment, exploring social media, tapping into decentralized finance, connected VR gaming or even finding love on the internet.

According to the Wells Fargo’s Global Investment Strategy Team, the entire crypto market and cryptocurrencies, in particular, are in a ‘hyperadoption’ period.

It is a sign of the impending Web3 revolution that will define how humans consume in the future.

Crypto winter will thaw soon

Many experts echo this sentiment and believe that cryptocurrencies are still in the nascent stage of user adoption, comparable to the internet boom throughout the 1990s. This was when the number of internet users saw tremendous growth despite a dot com bubble, eventually leading to the demise of many companies that couldn’t sustain operations.

Since then, players such as Amazon, NetFlix, Ebay and their like, have transformed into multi-billion dollar entities with mainstream importance. Extending this to the current crypto market, today governments are trying to develop frameworks for the entire crypto ecosystem. Self-regulation by matured crypto firms are helping thwart malicious cyber-attacks from crippling investor confidence.

Judging by these facts, it would only be prudent to conclude that the current phase alludes to a period of healthy consolidation. It is not a debilitating crypto winter, as is being painted by perennial crypto critics.

About the author

Baig Khaleelulla is a Fintech entrepreneur with over a decade of experience in insurance, stock broking, wealth tech and crypto assets. Building scalable investment-tech products and commercializing them is his forte. As a start-up founder, his competencies include spotting emerging opportunities, time-boxed MVP development, product launch, growth marketing and user engagement. Baig is an alumnus of the prestigious Indian Institute of Management (IIM) Calcutta (EPBM – Business Administration and Management, General: 2005-06).

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