Cryptocurrencies are a digital asset that has experienced huge growth in recent times due to various factors such as the decision by some governments to give the currency legal tender. However, it has also suffered situations that cast doubt on its viability, such as the most recent episode known as the “crypto winter”.

In the crypto world, a downtrend that occurs for a long time is called a “winter”. So far there have been five of them, between 2017 and 2021. The most dramatic one occurred in 2018 and was the one that gave the phenomenon its name. During that year, bitcoin fell 80% from all-time highs. In 2021, the “winter” lasted between 14 and 10 weeks and caused bitcoin to lose between 45% and 47% of its value.

This last episode was caused by several issues such as the inflation suffered worldwide, which caused an increase in interest rates in the main Western economies such as the United States, the United Kingdom and Canada, among others. The panorama of global uncertainty is completed by the geopolitical tension due to the war between Russia and Ukraine and the confinements in Shanghai due to the resurgence of Covid-19.

This combination of variables caused Bitcoin to unexpectedly depreciate 77% of its value, falling to the barrier of US$28.000. In the case of Ethereum, the second most important crypto in the ecosystem, it lost 31% of its value during May. The ripple effect also affected Terra’s stable coin, LUNA, which fell more than 100% from $118 to $0.09, a low blow likely impossible to get recovered from.

What’s behind the crypto crash?

Cryptocurrencies have many characteristics that make them unique, such as not being regulated by a central bank or similar entities. This difference with fiat currencies (issued by the States) or shares, means that they do not need intermediaries in transactions and, instead, blockchains are used to record accounting movements, in this way global control is kept and they avoid possible fraud since each transaction is validated by multiple computers worldwide.

Anyone would believe that, due to this condition, cryptocurrencies are alien to the international context. On the other hand, more investors are becoming increasingly attracted to this market and those interested are institutions of great importance —Tesla and its investment in bitcoin is a good example— and what happens in the traditional stock markets begins to have an direct impact in the price of cryptocurrencies.

For this reason, the decision of the United States Government to raise the bond rate as a strategy to curb inflation had a negative impact on the crypto market, in parallel with the stock market, specifically of technology companies, which have been suffering falls since the beginning of the year.

For example, Netflix, the series and movie streaming company, has accumulated a drop of 43% in the last 6 months while others such as eBay or Tesla have dropped around 11%.

According to experts, updating the interest rate is a financial maneuver that directly impacts highly speculative and volatile markets such as the crypto market. Consequently, investors – with billion-dollar portfolios – temporarily migrate their capital to safer and long-term investments.

What to do in this context?

Experts in the cryptocurrency industry explain that the market entered a “bearish cycle“, something that occurs in the traditional stock, real estate or oil markets, among others. Therefore, the recommendation is that there is no need to be alarmed. On the contrary, they assure that it is a good time to learn and know how to invest in the long term and tell which type of projects have a more solid business model.

Iñaki Apezteguia, an Argentine crypto teacher and communicator, published a column where he says that “we are going through a bear market that began when bitcoin reached its historical price of US$69.000 in November 2021. Today it is correcting 60% and has been around 180 days at that value”.

According to the specialist “it is to be expected that there are approximately 100 days left if we follow the history of a bear market; today there is fear in general with a bitcoin at US $ 22.500, when not long ago it was pure euphoria”.

The communicator indicates that the best way to operate is not only to “think that prices will always go up. Always before a bear market there is a bullish one. Also, the flat prices are getting higher”, he reflects.

“The healthiest thing to do is to take a bear market as an opportunity to buy solid projects at low prices, but for that you have to be ready or provision for this type of situation […]. In that sense, the secret is to be able to go through a bear market without going to the extreme of thinking: ‘everything is over here'”, he adds.

Conciliac Team – info@conciliac.com