This Isn’t a 'Crypto Winter'

 By Frank Corva 

The term “crypto winter” gets thrown around a lot in the media these days.

It’s quite an arbitrary term, though, as few media outlets offer a proper definition for it.

And what most outlets that use this term fail to state is that crypto markets aren’t the only markets that have been in a prolonged downtrend. Most markets have been.

Taking this into account, “crypto winter” is a misnomer.

Due to the Fed’s quantitative tightening (QT) measures — both raising interest rates and rolling assets off of its balance sheet — what we’ve experienced in markets across the board since the onset of 2022 is more of a “macro meltdown” than a “crypto winter.”

Crypto markets are experiencing more pain than almost any other market because digital assets have higher beta — that is, they’re more volatile than most traditional assets.

Media outlets tend to report on how much the prices of most crypto assets have fallen without contextualizing this information with how much they’ve risen since the March 2020 market lows.

Media outlets also tend to fail to contextualize the difference between this current market situation — again, what it likes to call a “crypto winter” — and what the crypto winter of 2018 to 2019 was actually like.

The 2018 to 2019 crypto winter — a real crypto winter

During the crypto winter from 2018 to 2019, crypto was in a different, less-developed state.

Back then, there was no DeFi or Michael Saylor, and there were no CryptoPunks or Bored Apes. And there were certainly no developing countries making BTC legal tender or countries engaged in conflict requesting financial support in the form of Bitcoin (BTC) and Ether (ETH).

Crypto was much more of a fringe asset class between 2018 and 2019. Also, traditional markets performed relatively well compared to crypto markets during those two years. 

In 2018, the crypto markets went into freefall in mid-January.

On January 13, 2018, one ETH cost approximately $1,415. However, as of December 31, 2019, one ETH cost approximately $145.

During that same time frame, the SPY — the index that tracks the S&P 500 — rose in price from approximately $279 to $320.

In 2018 to 2019, traditional markets were lukewarm while crypto markets were ice-cold. 

This isn’t the same dynamic we’re experiencing today, in which almost all markets are getting beaten down as a result of Fed policy.

ETH: The crypto catalyst?

I used ETH as an example in the previous section, because while its price had essentially sloped downward and then traded in a subdued range in the 2018 to 2019 crypto winter, it has begun to perform differently in 2022’s “crypto winter.” It’s become the risk-on asset that many investors have their eyes on now.

Ethereum is less than a month out from “The Merge” — an event in which the consensus mechanism that governs the network shifts from proof of work (PoW) to proof of stake (PoS). 

As this transition is set to occur, some investors are speculating that the approximately 4% yield you can earn by staking your ETH may become a benchmark rate for yield that investors can earn on digital assets.

Also, “The Merge” is on the verge of being delivered all while over $35 billion is locked in DeFi on the Ethereum network.

The state of Ethereum in this 2022 crypto bear market is much different than the state of Ethereum in the 2018 to 2019 crypto winter. Back then, Ethereum was mostly only good for launching scammy ICOs and one of the earliest lines of NFTs.

Now and then

So, before you go taking the media’s word that we’re in a “crypto winter,” take note of some of the differences between then and now. 

In 2018 to 2019, the crypto industry was recovering from the fatigue of the arguments and drama that surrounded the Bitcoin network forks and the SEC’s cracking down on entities that issued ICO tokens that resembled securities.

We didn’t have major personalities like Snoop Dogg collecting NFTs under the moniker of a Renaissance banker and art collector on Twitter.

We didn’t have the largest money manager on planet Earth — BlackRock — getting into crypto with the help of Coinbase.

And we didn’t have massive, reputable VC funds like Andreessen Horowitz continually raising billions of dollars to invest in crypto markets. 

This crypto downturn may seem worse because big names and big institutions are now in crypto and are now down big. 

But if the crypto market turns around once the Fed loosens its stranglehold on all markets, then the media should acknowledge that we haven’t been in a crypto winter.

Instead, it should explain to its viewers and listeners that we were in a bureaucrat-induced financial meltdown that happened to take its toll on crypto markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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