NEW YORK - If you are not a longtime follower of cryptocurrencies like bitcoin you might not be familiar with the term crypto winter but it can send chills down the backs of investors.
The term refers to a sharp drop in the value of cryptocurrencies and a long drop-off in trading of virtual currencies, according to the Straits Times.
The winter refers to cold, i.e. the asset is not hot and there is not as much demand.
The last time the market suffered a crypto winter was in 2017 and 2018. Bitcoin dropped as much as 80% from record highs at the time.
An 80% drop-off this time around would put bitcoin prices at around $15,000, which is a lot lower than prices today.
Cryptocurrency is a more volatile asset than traditional stocks. While the stock market rose sharply in 2021, crypto prices surged even more. But now, as the stock market is dropping, crypto prices have been plunging even faster.
Crypto Winter 2022
The fear of a crypto winter comes as the leading virtual currency has plunged more than 50% from recent highs.
Bitcoin has dropped from a record high of nearly $69,000 in November to $35,071.80 on Jan. 23, 2022.
Adding to the concerns are expected interest rate hikes in 2022. That could lessen the excitement for virtual currencies as investors flock to safer assets.
Also adding unease is new regulations the U.S. government is expected to release as it worries about its impact on the economy and potential national security issues that cryptocurrencies create.
The good news, if the past is any indication, is that crypto slumps have been followed by sharp rallies. The question that no one has the answer to is when it will happen.
Is a Crypto Winter here?
While there is talk that a crypto winter has already started, it could just be a temporary slump. There have been warnings of crypto winters that have not materialized. A warning was issued last June that a digital currency selloff pointed to a crypto winter. Investors know how the prediction turned out.
The good news, if the past is any indication, is that crypto slumps have been followed by sharp rallies.
Goldman Sachs has predicted that bitcoin prices could reach $100,000.