Back to the list

Will the Crypto Winter End Sooner Than Expected?

12 August 2022 08:50, UTC
Denis Goncharenko

Crypto winter, according to South Korean academics, is expected to expire before the end of the financial year, but the US Federal Reserve's efforts to support the US economy may continue to affect crypto markets in the interim. Maeil Kyungjae, a reporter for the Korean exchange Korbit, conducted the investigation. While the "prolonged" crypto winter is expected to persist for several months, it is expected to end by the conclusion of this year's fourth quarter.

Oanda senior market analyst Edward Moya adds that "Wall Street is enjoying a favorable risk-on mentality that is excellent news for cryptos," according to Oanda's statement. He believes that the crypto market is becoming "attractive" as the economy improves and prospects for Federal Reserve tightening decrease.

Many crypto investors have taken advantage of historically low-interest rates in recent years to borrow heavily against their assets. Cryptocurrency's interconnection was brought to light when the Terra blockchain collapse sparked off a chain reaction that severely damaged multiple crypto enterprises, notably crypto hedge fund Three Arrows Capital, which had invested $200 million in Terraform Labs' Luna token. Terra’s collapse, which wiped out $60 billion and rendered a once-respected crypto ecosystem useless, further continued to have an impact on the crypto sector. Since it could not pay its debts to investors, crypto hedge Three Arrows Capital was obliged to sell its Luna holdings. Due to liquidity issues exacerbated by Three Arrows' failure, crypto brokerage Voyager Digital ceased trading and withdrawals.

Amidst these severe downfalls, cryptocurrency analysts have been predicting a final drop in the market, ranging from $10,000 to $14,000 for Bitcoin, for the last several months. Edward Moya, however, believes that if more institutions purchase Bitcoin in the following weeks and months, the "market positioning grows excessive" and Bitcoin's bottom has been reached.

Several analysts predict that the value of cryptocurrencies will rise to $5 billion by 2030. Investors, companies, and brands can't ignore the growing wave of crypto for long, regardless of whether they want to invest in it or not.

But contradictions appear to be everywhere in crypto. In spite of their belief in regulation, investors are concerned about some of the negative effects that it will have. They care about the environment, yet crypto has a significant carbon impact. Despite the recent upswing, the cryptocurrency market is still in a slump. It's been a rough year for both Bitcoin and Ethereum, which have both lost more than 50% of their value this year. According to Wendy O., a crypto specialist and educator:

"We're not in a bear cycle; we're in a full-blown bear market. Just because we see some good market activity doesn't imply we're out of the clear."

This isn't the first time the cryptocurrency market has dropped by more than 50%. In fact, the first crypto winter should better be referred to as a Bitcoin winter, since Bitcoin represented more than 95% of the market until 2013. Because cryptocurrency is such a new asset class, investors must make their way through unknown seas. There is no assurance that the crypto market will ever rebound, but Bitcoin and Ethereum have a compelling investment thesis for risk-tolerant investors eager to profit from the slump.

Ethereum investors are bullish on the upcoming Merge which is set to happen in the middle of September. Some even it to be the starting point of a new bull market. However, to get a deeper understanding of the crypto payment sector, industry professionals are keeping an eye on factors like legislation and institutional adoption in the months to come.