The history of cryptocurrencies, although short, is cyclical. Since the creation of Bitcoin in January 2009, the major cryptocurrency has suffered large rises and long crypto winters. Therefore, understanding this concept and the nature that, until now, Bitcoin has registered a history of repeated cycles is fundamental. Angelo Babb Reid, an expert in cryptocurrencies and their legal implications, explains the concept of a cryptocurrency winter and why it isn’t necessarily bad.
The difference between a price correction and a crypto winter is the length. In a correction, the price should recover in a few months. However, a crypto winter would last for years, as has already happened on other occasions.
The current correction of 68% for Bitcoin, with respect to its historical maximums achieved in November 2021, should not surprise cryptocurrency investors. What some people assumed was a crypto winter as prices began to plummet most likely isn’t.
Babb explains, “There were concerns that the price of Bitcoin could fall to as low as $13,000 as it approached $20,000. While it did drop to $18,000, it has since recovered. This is a likely indication that we are not in a true crypto winter.”
However, the belief that a crypto winter had arrived made sense. There was a loss of trust around crypto assets in general after what happened with Terra/Luna and stablecoins. In addition, the general economic situation played a part in reducing confidence. Bitcoin is often parallel to Nasdaq, which recently registered a fall of 30% due to inflation and the change in monetary policy. In addition, analysts believe there could be a recession by 2023.
However, at the same time, the venture capital that continues to be allocated to these types of assets is unprecedented. As many expect the price of Bitcoin and other digital assets to rise again, it makes sense that they would begin to invest in different offerings.
On many occasions, to understand the future, you have to understand and look to the past. Within the history of Bitcoin, there have been large rallies with strong corrections that, at times, have caused it to lose up to 80% or more of its historical maximum of that time.
“Bitcoin’s first rally was recorded at its birth,” adds Babb. “In just five days, it went from $0.008 to $0.08 – a rise of 1,000%. Its price continued to rise, with variations, until 2011, when it peaked when exchanged for $31. However, it then returned to $2 in December of that same year.”
The rally continued in 2013 when it managed to surpass, for the first time, the $1,000 mark and then plunge into a long four-year crypto winter, with its respective ups and downs. However, it wasn’t until February 2017 when it again surpassed the all-time highs recorded four years ago. That year started a new rally that lasted until December and touched $20,000. Again came a downturn and, in 2019, it was trading below $4,000.
This cycle continues through today. In December 2020, Bitcoin was trading at $20,000. Then, a year later, it was up to $68,000. As a result, investors should look at what happened in the past and determine how to proceed from here.
Compared to before, however, Bitcoin has broken down more barriers. It has become legal tender in some countries, and there is more regulation and more knowledge. This is also the result of the fluctuations, and the introduction of regulations will help increase stability.
In 2021, venture capital investment in the crypto and blockchain space, at $21 billion, was higher than anything invested during the previous six years. Likewise, during the first quarter of 2022, even more venture capital was invested, adding another $10 to what was previously invested. And just two weeks ago, venture capital firm Andreesen Horowitz announced the successful raising of $4.5 billion for a “web3” fund (its catchphrase for the crypto/blockchain world).