As Bitcoin is struggling to clear the $30k level, and the global crypto market cap is threatening to fall under $1 trillion ($1.3Tr at the time of writing), the talks of a crypto winter become more and more common.
So what is it exactly and should we be worried? Let’s try and see.
Those of you who lived through the 2017 Bitcoin bull run are familiar with the notion of a crypto winter which came afterwards – a roughly one-year period which erased all the bull run’s price gains and spread desperation across the industry. It also featured decreasing price volatility, witnessing to the diminishing interest in crypto and overall low industry activity.
In hindsight, of course, it was just another market downturn, but back in 2018 crypto was (once again) proclaimed definitely dead. There are less and less journalists today who wish to embarrass themselves by claiming another crypto death, but “crypto winter” is becoming a new scary story that makes the market worrying.
To see if 2022 situation is likely or not to repeat the 2018’s, we need to look at key indicators of the crypto industry.
This week a US-based crypto exchange Gemini announced it will be dismissing 10% of its personnel, while Coinbase extended its hiring freeze on backfill roles (not refilling the jobs of people who leave the company) and even on the jobs accepted, but not yet started by the candidates. Similar measures were announced by some other exchanges across the world, notably Bitso (Mexico), 2TM (Brazil), Buenbit (Argentina) and Rain Financial (Bahrein).
Coinbase’s announcement came shortly after the company published a $430 million loss in Q1 2022, an unwelcome data for the public companies. Also, both 2TM and Rain Financial are backed by Coinbase, leading to believe that their decision to cut costs had something to do with the San Francisco office. Whether this is true or not, it is worth mentioning that crypto exchanges are companies like any other, and their well-being depends not only on the market, but also on their management.
What is reassuring is that not all the exchanges are switching to the economy mode. FTX (the exchange that for the first time challenged Coinbase’s second place in worldwide trading volume) has recently opened a branch in Japan, while Binance, world’s leading exchange with 64% market share, is continuing its efforts to get licensed in as many countries as it can and sponsoring the world tour of The Weeknd.
As to the crypto recruitment, the laid off specialists might find another home within companies like Fidelity, which recently announced it would be hiring 100 more people for its crypto-focused subsidiary.
One of the reasons the Argentine Buenbit has started cutting costs might be a negative outlook for a series B fundraising round it was planning this summer. After last year’s spending frenzy and the impressive implosion of Terra Luna blockchain and related projects, venture capitalists are said to tread carefully. This week’s Crypto Valley Conference’s VC panel confirmed as much, mentioning that many smaller VCs do need to hold on investing and concentrate on tidying up their balance sheets.
However, once again this is not a general rule. Venture capital giant Andressen Horowitz, also known as a16z, has recently announced its fourth crypto fund, this time for $4.5 billion, with $3Bn for venture investments and $1.5Bn – for early seed projects in Web3 gaming, DeFi, decentralized social media, DAOs and many other domains. A16z is not only behind many of the crypto industry’s most dazzling success stories, it is also a crypto winter veteran, having launched its first $300M crypto fund in 2018. Today its overall crypto exposure nears $7.6 billion.
Investments also continue beyond specialised VC funds. Last month Algorand, together with Hivemind Capital, purchased Napster, a music sharing platform popular in the 2000s. Algorand is a PoS blockchain aiming at becoming an “Ethereum killer”, and its Napster acquisition could help it advance in the music NFTs direction, stimulating its creative ecosystem.
A crypto winter is often described as inhospitable period when new projects are put on hold. This is not exactly what is happening now.
Limewire, a music-focused NFT marketplace project on Algorand, has recently signed a global deal with Universal Music Group, which would allow it to sell both music and music-related goodies and collectibles as NFTs.
In a rather ballsy move, Fantom, another scalable blockchain previously supported by the famous (and retired) developer Andre Cronje, launched its decentralized stablecoin fUSD last month. Unlike the infamous Terra, it is over-collaterized, and Andre Cronje is now rumoured to come back to the project, after having been spotted releasing an optimisation proposal.
The existing projects continue their development as well, like the DeFi platform Bancor, which is actively pursuing its ambitious plans of defeating the impermanent loss (the common and largely misunderstood DeFi protocols’ danger).
One of the reasons many believe that 2022 will repeat 2018’s scenario is the cyclic character of the crypto market. Bitcoin is still the most important coin there is, and its 4-year halving routine has been shaping the whole crypto market for many years already.
Halvening is an event built into Bitcoin protocol that is reducing miner’s reward by half every four years, effectively making Bitcoin scarcer and increasing the demand. Naturally, the buying pressure always ends up by decreasing, sending prices down, while leveraged and derivatives trading exacerbate the price movement.
However, many analysts believe that 4-year Bitcoin cycles will have less and less influence over the crypto market over time, as investors grow wiser and less susceptible to panic selling. The ever increasing crypto grassroot adoption (real use by real people, poised to reach a whopping 1 billion people by the end of 2022), as well as the increasing penetration of the traditional finance will make the space less volatile, while crypto regulation all over the world will give it the necessary legitimization.
Whether we chose to call this market downturn a “crypto winter”, or we leave this very specific definition in the 2018, the number of people using crypto, companies developing crypto, and funds investing in crypto is growing. And after winter, spring always comes ?