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Crypto winter: What you need to know - Part 2

This year, cryptocurrency prices have been crashing, with the digital currency market proving vulnerable to the wider problems of the global economy. Some in the industry have declared the arrival of a 'crypto winter' because of this.

The term 'crypto winter' refers to the fact that prices have dropped a long way and then stayed low for a while. Numerous signs indicate that the failure of the TerraUSD crypto project in May sent an icy blast through the market, and then the cryptocurrency lending platform Celsius Network halted withdrawals, prompting a sell-off that pushed Bitcoin to a 17-month low.

Turmoil has led to crypto winter:

Crypto exchanges, such as Coinbase and Gemini, have announced job cuts. Coinbase is planning to reduce its workforce by 18%, while Gemini's management has warned of difficult times ahead. The current macroeconomic and geopolitical turmoil has further compounded this issue, they say: “We are not alone.”

According to Easymarkets, high inflation, rising interest rates and the financial turmoil that followed Russia's invasion of Ukraine are some of the factors contributing to the winter. In late 2020 and 2021, the crypto markets soared partly because of the US Federal Reserve, which was pumping so much money into markets in response to the Covid-19 crisis. But with central banks tightening monetary policy, that’s over.

Cryptocurrency and inflation:

The recent downturn has prompted many to consider how cryptocurrency fits into a world where inflation is rising. Some investors believe that cryptocurrencies could provide protection against inflation, but that’s now in doubt, says Ally's chief markets and money strategist, Lindsey Bell.

She says that some investors are using cryptocurrencies to hedge against inflation. “This could prove to be a savvy move, but that remains to be seen for now because it is such a youthful investment asset class. Its risk is less understood and more difficult to compare with other securities.” Multiple crypto winters have been observed since 2017, with three occurring since 2021, according to Reuters. However, opinions are divided about how long this latest one will last.

Although Bitcoin has experienced heavy losses this year, there are some signs that it is preparing for a comeback, according to Nasdaq.com.

Some analysts believe that this crypto winter will be less severe than previous freezes, partly because corporates and financial institutions have entered the market. The technology, staff and legal arrangements that these institutions have built up will allow them to invest in future transactions even if they are selling now.

Next for crypto:

In a recent Forbes article, Farran Powell, editor of Forbes Advisor, stated that this crypto winter is a lot like a conventional bear market, pushing weaker start-ups out of business and giving stronger companies the chance to 'mature and prove their products'.

Powell quotes Jake Weiner, the CEO of cryptocurrency hedge fund Uncommon, who believes that some companies are in a strong position. “Unlike past crypto winters, a lot of crypto [venture capitalists] have already amassed war chests that they will continue to deploy.”

About Boris Dzhingarov

Boris Dzhingarov graduated UNWE with a major in marketing. He is the CEO of ESBO ltd brand mentioning agency. He writes for several online sites such as Tech.co, Semrush.com, Tweakyourbiz.com, Socialnomics.net. Boris is the founder of MonetaryLibrary.com and cryptoext.com.
Read more: Reuters, Forbes, Coinbase

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