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crypto winter

What is a Crypto Winter and How to Prepare

Crypto winter can be one of a crypto investor’s most challenging times. These times of enhanced negative sentiment toward cryptocurrencies have fortunately always ended. With that being said, cryptocurrency trading first launched in early 2009, so all of the information available about crypto patterns is only around 15 years old.

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What is a Crypto Winter?

A crypto winter is a period in which there is a general feeling of long-term negative sentiment towards cryptocurrencies. This prolonged sentiment leads crypto markets to experience an across-the-board hit in value. While there is not an exact figure that marks the beginning of a crypto winter, a guideline can be taken from bear markets at around 20%. Hopefully, with more data and experience going forward benchmarks will become more firmly established with historical data. 

What are the Signs of a Crypto Winter

As mentioned earlier, trading and investing in cryptocurrencies is still fairly new when compared to other more traditional forms of investment. With that being said, there are still a few things to keep an eye out for when identifying the trends of a crypto winter. 

  • Falling crypto prices: This factor should not be too alarming considering that crypto prices are already highly volatile. Focus on the long-term trend when analyzing price. If they have been consistently failing over a long period then it may be time to connect the dots with other confirming factors. The more people that notice, the colder a market will become with a lack of active trading or currency holders which can lead to a network-wide freeze.
  • Major security breaches, hacks, or fraud: Major cybersecurity issues and fraud can shake investor confidence within crypto networks. As an example, in 2014, Bitcoin lost around $60 billion in value after Mt. Gox, a Tokyo-based exchange, filed for bankruptcy. This process was plagued by cybersecurity issues making it almost impossible for Bitcoin withdrawals to be processed. 
  • Decreased interest from institutional investors: Major cryptocurrencies including Bitcoin and Ethereum owe much of their success to the interest of institutional investors. While they have played a key role in the success and perception of cryptocurrencies, they can become hesitant to participate in the market if they perceive any kind of decline or stagnation. 

What is the Difference Between a Bear Market and a Crypto Winter

Sometimes bear market and crypto winter are used interchangeably within crypto communities. Although a bear market and crypto winter can take place concurrently, there are still a few differentiating factors that delineate the difference between the two. A crypto winter is when stocks and currencies within the crypto world lose popularity and value, becoming stagnant. A bear market is a better description for a period in which the price of a financial asset declines 20 percent or more coming off of a recent market high. 

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Causes of a Crypto Winter

While predicting crypto winters and what causes them is not an exact science based on a lack of quantity of data available, there is a general understanding of the several factors that work together to cause crypto markets to move into the winter territory. Crypto markets are specifically volatile markets that present unique opportunities and challenges for investors in a kind of “all or nothing” manner. When things are moving in a negative direction they tend to barrel downhill as there are no business assets to sell to offset investor losses. Investors who lose confidence pull their money which causes markets to stagnate or deflate a considerable amount. 

Global political destabilization, major conflicts, major global economic downturns, or recessions may also cause symptoms of a crypto winter. The crypto market is unique considering it is constantly trading all across the globe. While small interferences or local misalignments will likely not cause too many problems, widespread global issues that affect the standings of investors will certainly have the ability to freeze the Market. 

How to Prepare for a Crypto Winter

Predicting a crypto winter is a difficult process that involves taking a combination of factors into account. Even when all relevant factors have been analyzed, it is still impossible to find certainty in your prediction. With that being said, if you are willing to withstand some risk and deal with a high level of volatility, you can still try your best when preparing for the future. Some actions you can take that will increase your chances of being prepared for a crypto winter include staying up-to-date with cryptocurrency news, monitoring investor attitudes, and identifying factors outside of crypto that affect the markets. 

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