Bitcoin, Ethereum and Alt-Coins: A Brief History of Crypto Winters
At the end of the summer, 2021, reports coming from Coinbase showed the leading crypto exchange was putting together a nearly $4 billion “war-chest” in the event of a crypto winter. A few months later, Bitcoin’s price halved.
Crypto is known for its volatility, and that’s a part of its appeal, but crypto’s last boom and bust cycle saw the market essentially dry up for four years. Comparing crypto’s first boom back in 2017 to its most recent one could reveal whether or not we’re bound for another long, cold, crypto winter.
The macro backdrop of the 2017 boom started with three letters: I.C.O. The recently launched Ethereum blockchain inspired many to use the tech to create their own de-regulated securities.
The promise of “buying the future” and the lack of regulatory oversight flooded the market with coins for startups with incredibly high probabilities of failure.
Within a few months, though, liquidity dried up. The year 2017 could have been an anomaly, until the 2020 boom rapidly changed the state of play for crypto.
Each of the booms were propelled by massive speculative hype, but 2020 saw a stronger fundamental backdrop than 2017. It was a boom that was still largely based on speculation, but between stimulus and institutional adoption, major crypto currencies gained legitimacy.
A common thesis that was propping up bitcoin specifically was that because there was a fixed supply of bitcoin, it could act as an inflationary hedge, similar to gold. It didn’t take long for this to change during a downturn.
Bitcoin’s price correlation to inflationary hedges quickly became fiction, with Bitcoin and other crypto currencies prices most closely correlated to indices like the NASDAQ and S&P500.
The Future of Crypto Winters
The macro outlook for crypto isn’t stellar through the next 2022. Bitcoin’s decoupling from inflationary assets and new-found price correlation to indices like the Nasdaq or S&P500, are a solid indicator that the market sees cryptos as high-growth tech stocks. We have an entire article on meme stock traders and why at this stage in the cycle, those with tech-heavy portfolios will likely need to rebalance.
Even with crypto’s macro challenges, the crypto winter we’re in now doesn’t seem like it’ll be as cold and long as the last cycle.
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