Why This Crypto Winter Is Different, and What Investors Should Know About It

The crypto market drew in a bunch of new investors in 2021 — and they are now experiencing their very first “crypto winter.”

Bitcoin, the largest cryptocurrency on the market, started the year trading at almost $48,000 but saw its value quickly erode during the springtime and fall all the way to under $18,000. It’s currently trading at almost $22,000, a year-to-date loss of around 55%. Similarly, ethereum, the second-largest crypto, was trading at almost $3,800 at the start of the year and is now close to $1,700.

This isn’t the first time the market has experienced a crypto winter, but investors are finding this time just hits differently. Experts say that’s thanks in large part to last year’s influx of new investors, and a complicated mix of flawed expectations and classic crypto market volatility.

“Clearly, there has been some irrational exuberance about where crypto prices are going,” he says. “People were living in a media bubble without paying attention to the hidden systemic risk built into all of these things,” says Dr. Benjamin Cole, a business professor at Fordham University and a fellow at the British Blockchain Association. 

Experts say the current crypto winter could last a while. Here’s what that means for investors. 

What Is a Crypto Winter?

Crypto winter is what they call the bear market in the crypto space, according to Piers Ridyard, the Switzerland-based CEO of RDX Works. But he says there is a key difference between a bear market and a crypto winter. “A bear market is when the market is going down, and a crypto winter is when it goes sideways, and doesn’t really do anything.”

By Ridyard’s definition, an investor would see flat returns during a crypto winter, and negative returns during a bear market. As the market has recovered some of its losses over the past several months, many investors may have experienced flat or at least substandard returns in their portfolios.

Ridyard says that these “winters” are often marked by people losing interest in the crypto market as returns are stunted. It essentially becomes a waiting game for many investors who aren’t confident about the state of the market. The current crypto winter could last “a year or two,” he says.

Another important thing to keep in mind is that crypto winters are basically fixtures of the crypto space, similar to bear markets in the stock market. 

“This isn’t the first time the crypto market has crashed, and it won’t be the last time,” says Lisa Teh, the co-founder of Mooning, an Australia-based Web3 marketing agency, referring to the last crypto winter, which stretched from late 2017 into late 2020.

Why This Crypto Winter Is Different, According to Experts

Experts generally agree the market is in a crypto winter, and that investors should get accustomed to periodic stretches of flat or negative growth.

The reason the 2022 crypto winter feels so much more severe, Teh says, is that “there are significantly more people in the market now than last time — so, more people were affected, there’s more noise in the market, and more people are talking about it.” 

Further, Teh says a lot of investors got into crypto expecting the market to behave differently from stocks or other assets in the face of rising interest rates and high inflation. That hasn’t happened, and it’s left many crypto investors frustrated and confused. Historically, cryptocurrency experts and investors touted bitcoin as an inflation hedge because of its limited supply of 21 million and speculative nature. 

“People are getting upset because they don’t understand it,” Teh says.

In many ways, the crypto downturn and subsequent winter is similar to the housing crisis in 2008 and 2009,…