THE bitcoina cryptocurrency most traded in the world and a reference for the sector, started a devaluation movement in December 2021, which raised a question: is the market entering a new “crypto winter”?
The term defines a Cryptocurrency market cooling off periodwith falling assets.
The phenomenon has already been recorded on two occasions, very much in line with the performance of bitcoin itself. For experts consulted by the CNN Brasil Businesshowever, it is too early to say whether the cryptocurrency market has changed seasons.
What is “crypto winter”?
UFC professor Edemilson Paraná compares “crypto winter” to traditional bear marketan expression of the financial market that defines a period of fall in the price of securities and aversion to risks.
According to him, digital currency investors seek to coin their own expressions and culture, hence the emergence of the term.
The definition itself is a period of six months to a year when the market is bearish, with low volume of transactions. a slowdown
Edemilson Paraná, UFC professor
He says it’s common for investors to associate “crypto winters” with the so-called halving, a process in which the amount of bitcoin issued by mining is halved, and occurs every four years or so.
THE halving helps support the logic that the limited amount of the cryptocurrency will only be mined entirely in 2140. The last one was in 2020, with the next one expected in 2024.
“The idea is that there is a bullish cycle right after the halving, because it opens up a sense of relative scarcity, which makes agents feel encouraged to buy. After that, in up to 1 year, it has a big relative drop with the stabilization of the emission rhythm, and the activity drops”, he says.
For Caio Villa, investment director at crypto-asset trading platform Uniera, another feature of the “crypto winter” is that investors “are gripped by fear”.
“It is a long period, of more than a year, in which the price of assets does not appreciate. When it occurs in the ‘crypto winter,’ new coin releases fall off because they don’t have great success either,” he says.
Alex Buelau, chief technology officer at fintech Parfin, also links the “crypto winter” to halving, as an event that ends these periods. Bitcoin issuance rate started at 50 units, and today it is already 6.25, which helps create supply shocks.
“The idea is that he [o halving] ends the ‘crypto winter’. Then there is a supply shock, and then, as demand remains the same, it forces prices up. It is a vicious or virtuous cycle, because the boom becomes news, people come in, buy and put more firewood in the sector”, he says.
Despite this, Paraná states that, often, the analysis of the “crypto winter” is excessively focused on the halving. “It’s a very closed view on what governs economic behavior, it doesn’t reach the macroeconomy”.
“It is a naturally speculative space, and these ups and downs have to do with that, with the moods linked to those of the world economy itself.”
previous winters
According to Villa, themost famous crypto winter was the one that started between December 2017 and January 2018. The month of January itself, he says, is bad for the sector — a trend reinforced in that period.
At the time, the cryptocurrency market was starting to take off, with bitcoin hitting the $20,000 milestone. Shortly after, however, he started a downward movement, which would only be reversed in the second half of 2019, before the big push with the pandemic.
Villa says that, in that period, the size of the market already allowed the launch of several projects and coins, in the so-called initial offerings of decentralized finance (IDO), but most ended up failing or registering losses of up to 95% this winter.
Buelau claims that bitcoin’s first “crypto winter” happened earlier. In December 2013, the digital currency reached the historic mark of US$ 1,000 and then the price started to fall and failed to recover until 2017, after a halving in 2016.
Winter has come?
Edemilson Paraná assesses that any analysis of the “crypto winter” needs to consider the macroeconomic context that affects not only cryptocurrencies, but all assets on the market.
In 2020 and 2021, the scenario of pandemic ended up proving favorable to cryptocurrencies. First, expansionary monetary policies around the world to reduce the impact of the pandemic increased the circulation of money, and some of it could be used to invest in riskier assets, such as tech stocks and cryptocurrencies.
At the same time, bitcoin came to be seen as a potential store of value, that is, an investment to protect value invested in a scenario of high inflation in several countries with the recovery of the economy and the imbalance between supply and demand.
In this context, cryptocurrencies, and bitcoin in particular, took off. The world’s largest crypto asset hit the $69,000 mark in November last year. But the scenario changed from the end of 2021.
Some countries have already started monetary tightening, withdrawing market stimuli and raising interest rates. The world’s largest economy, the United Stateshas already started to reduce the amount of money it injects into the market, and is considering raise interest rates in march.
With a more unfavorable environment for risky assets, bitcoin, and cryptocurrencies as a whole, started a downward trajectory.. The asset spent weeks at around US$ 35,000, with small variations up and down, and only on Friday (4) managed to touch US$ 40,000 again.
“Bitcoin is a speculative asset and, therefore, has its own logic of behavior. When a lot of people enter, more people enter later, a cyclical logic, of a herd, that is reinforced. And when a lot of people leave, more people leave later”, says the professor.
Despite the devaluation trend, Caio Villa says that, today, the data do not point to a winter scenario like that of 2017 or 2014. blockchain indicate that the period is “accumulation”.
“Short-term holders are getting rid of the asset, and long-term holders are buying it. We see fewer and fewer assets available in exchanges, and if they’re not there, it’s because they don’t want to sell. So, it indicates optimism with the price of the asset”, he says.
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Another positive sign is that miners are also not putting their assets up for sale in exchanges. As they usually sell them to bear costs and profit, the absence of this indicates a bet on the upside.
Villa also cites a strong movement of IDOs, and that those with good fundamentals are making a profit for those who launch. According to him, a scenario opposite to that of winter.
He also claims that most investors have suffered losses. That is, they are selling the assets at a lower price than the purchase price. “The long-term holder, from before March 2020, is not selling, and could be taking a profit.”
“In 2017 and 2018, we had four big drops, reaching 40%, from the maximum in relation to the price. I think we are still in this process, but we are still in the second big drop, there would still be two more to go to get to a scenario like 2018”, he says.
For Buelau, “it is difficult to talk about winter, because the price is still relatively high, even after reaching US$ 69,000”. According to him, the analyzes still point to an upward movement of bitcoin.
Another factor that may be linked to this decrease, he says, is that the realization of profit or loss is also natural at the end of the year, since it precedes the payment dates of taxesand the declaration of these movements can generate deductions.
What to keep an eye on?
Villa says the main factor behind the declines is investor fear, which would come in a variety of forms. There is the factor of high interest rates in the United States, the tension in ukraine and uncertainties about the pandemic.
“There are a lot of new people on the market, new wallet addresses, and if they see a drop, they sell out of fear”, he says.
In this scenario, he claims to be important to keep an eye on bitcoin’s approach to the base of $39,000which, if exceeded, could encourage a new upward movement.
Due to volatility, however, it is difficult to predict the movement of the asset, and there is still no way to rule out that some event will lead bitcoin to a “crypto winter”. For the fall, the most important base is US$ 29,000, which, if broken, could lead to significant retreats.
Alex Buelau, on the other hand, estimates that bitcoin could amend a prolonged slump if it reached the $30,000 mark again, but there is no way to project that with certainty.
Given that some of the tech and cryptocurrency stocks have gone up a lot in the last couple of years, it’s natural that there will be a readjustment, but I don’t classify it as winter, I would be sure about that in about six months.
Alex Buelau, CTO at Parfin
The biggest concern for the sector, at the moment, is regulatory. He claims that the biggest influence for digital currencies comes from the United States, and regulatory changes can either help cryptocurrencies or bring them down.
“Institutional clients like regulation for safety, certainty of a reputable operation. So it’s good for the market that involves them, some individual investors and older bitcoin investors, who saw it as an alternative to the traditional market, don’t like regulation, but it’s hard to see how it can evolve without it”, he says.
From a macroeconomic point of view, he says that bitcoin may have a promising scenario if it gains strength as a store of value in the face of inflation still high in much of the world.
“There is a structure that shows that today US$ 38 thousand is important because of the history, but the most important thing to know what will happen is that US$ 28 thousand was the minimum of June 2021. Below that it is difficult not to say that has entered a crypto winter,” he says.
Source: CNN Brasil

I am Sophia william, author of World Stock Market. I have a degree in journalism from the University of Missouri and I have worked as a reporter for several news websites. I have a passion for writing and informing people about the latest news and events happening in the world. I strive to be accurate and unbiased in my reporting, and I hope to provide readers with valuable information that they can use to make informed decisions.