Heralded as “cryptowinter,” a temporary correction of a speculative bubble, the cryptocurrency rout 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 blow to cryptocurrencies that had been overheated until then. But initially billed as temporary, the episode seems set to be long-lasting. A “crypto winter” that briefly returns to the ice age.
Between the end of 2021 and the state of the market in January 2023, a world has collapsed. At the time, prices were at an all-time high. A first, rather gradual decline occurred between November 2021 and January 2022. After recovering until April, the price suddenly fell. The particularly brutal collapse occurred in three phases: April, May and June.
In that time, cryptocurrencies have lost more than half of their value on average. Bitcoin, a benchmark, saw its value fall by more than 73% between November 2021, to an all-time high, and the end of December 2022. Its price fell from more than $58,000 per unit to barely more than 15,000 in 13 months. And the long-awaited return is long overdue. To the point that some wonder if it will ever happen. This is what is now called the “crypto collapse”. An unprecedented phenomenon associated with the sudden disappearance of platforms specialized in the trading of these securities; giants like Celsius, Three Arrows Capital or even FTXwhich caused a lot of ink to spill.
Crypto Winter: End of Cycles?
Until this latest, particularly brutal and prolonged collapse, digital assets, Bitcoin at the forefront, had already experienced several reversals of fortune in the past. This is why the current phenomenon, which was thought to be similar to the previous ones, was first christened “crypto winter”, characterized by several months of price corrections… to recover even stronger and higher immediately after.
The first episode of this kind took place in February 2011, when virtual currencies were just emerging. Bitcoin, born in 2009, went from $1.06 to $0.67 in a matter of days. A drop of almost 40% that led the most pessimistic to declare this virtual currency dead. Barely a month later, however, Bitcoin flirted with $30… Only to fall back to $2.14 in November of the same year. Again, we predicted his imminent end. No.
By the end of 2013, the value of Bitcoin had risen to over $1,200. But a new crypto winter appeared in January 2015. At the lowest level, the price was $180. We were then talking about speculative bubbles. It wasn’t until 2018, when, for the first time, another Bitcoin crash really caused a stir, that the term “crypto winter” took hold. A year ago, Bitcoin had gone from $900 to almost $20,000 in a matter of months. Enough to encourage, for the first time, the general public to rush into this “magic money”.
Sadly, in February 2018, its price dropped by 65%. The Bitcoin grape turns into a mess. 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. Say goodbye to dreams of retiring to an island paradise at just 30 years old. Those who had invested all their wealth hoping that they would have found an authentic martingale they were left with only their eyes to cry.
And then things went back to normal. And with the rise of Web3 and from the metaverse, prices once again rose. The general public once again strongly believed in him. It was now or never. Until the new turning point at the end of 2021. Since then, an unprecedented phase has taken place. From June 2022 to early 2023, the market was abnormally sluggish, except for another small drop last November with the bankruptcy of FTX.
Crypto existential crisis
The fall in the price of virtual currencies, Bitcoin and Ether at the top, while the decentralized internet was in the center of attention of the entire planet, put an immediate stop to the promise of a new world. A virtual, shared world where Gafam would no longer have all the power, but where, instead, each individual would regain control of their data… and could develop value through their avatar and wallet dematerialized.
“We are at an existential crossroads for the industry. »
Professor of law
The Fall of Cryptocurrencies; metaverse which tries to become tangible and reliable despite the tens of billions invested by Meta by Mark Zuckerberg ; the almost endless investments of big brands to build digital empires on virtual plots bought at exorbitant prices; and even arrest in the Bahamas of Sam Bankman-Fried, FTX boss 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 crypto regulation in the columns of Washington Post. Adding that the market was currently trying to determine “What is the extent of the present gangrene”.
2023: the year of consolidation?
The bankruptcy of crypto trading giants, FTX and its sulphurous boss in mind, calls for caution. This is proof that the famous “too big to fail” is not always true. And that the digital asset industry still lacks much stability. The market needs to be cleaned up and consolidated in order for it all to regain some credibility in the eyes of the general public… and financial investors. More transparency is also needed.
So it is quite possible that the sector will gain, as is the case for the traditional financial industry, monitoring tools of these platforms (credit scoring, insurance, etc.) so that unexpected bankruptcies do not occur in the future. At the same time, other platforms are fading… and cleaning up. Thus, Crypto.com and Coinbase they have just announced that they will lay off 20% of their employees. Most players are scrutinized to gauge the seriousness of their lack of liquidity.
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 crypto, Web3 and capital markets for US financial services company FIS.
Therefore, the decline is probably not over. But the potential is still there. The price of the top 100 cryptocurrencies is still an average of 2000% compared to 2016. Above all, the technology of blockchain and everything that comes with it remains more than ever a revolution in the making. The value this can create in the years to come is very real. According to analysts, the return may finally happen in late 2023 or early 2024. Therefore, the ice age is still far from over. And digital assets are still well and truly in turmoil at present. For active crypto owners, more than ever, “patience is the mother of all virtues.”