In November 2021, bears officially took over the crypto industry. As a result, prices took a significant hit, with most digital assets suffering over 50% losses in a few months after reaching bull market highs.
To make things worse, multiple black swan events emerged. In addition to some high-profile hacks, the depeg of Terra's UST stablecoin in May and the recent collapse of the FTX exchange caused havoc on the market and contributed to the increasing investor panic.
Partly due to the crypto winter and the above events, many large projects have become insolvent during the current bear market. Besides FTX and its sister quant trading company Alameda Research, the digital asset lender Celsius Network, the Three Arrows Capital hedge fund, and the publicly-traded Voyager Digital cryptocurrency broker are some of the industry firms that have recently become bankrupt.
At first glance, these lines may seem to have depicted some "doomsday scenario" for crypto. Yet, what you see is only the surface, as business goes as usual for industry projects that often see bear markets as excellent opportunities to build.
In this article, we will explore:
1. Why the current crypto winter is a completely normal period of the market
2. What indicates that the market is already preparing for the next bull run
3. How crypto winters actually benefit the industry
No Reason to Fear the 'Winter'
With the losses of top coins exceeding 70% of their bull market highs, crypto winters, in general, can be quite frightening for not just those who are new to the industry but for digital asset veterans as well.
However, we can safely state that crypto is definitely not dead. And it won't be for quite some time. But what is the reason behind our argument? Let's see.
First, as with all financial markets, crypto is cyclical, and prices are determined by supply and demand. In the simplest terms, this means that there are periods when:
- Prices rise: Investors show great interest in cryptocurrencies and buy significantly more assets than they sell
- Prices fall: Investors lose confidence in the market and sell substantially more assets than they buy
- Prices stagnate: Buying and selling activity is in balance without any major market trends or events that could trigger either a bull or a bear run
While people tend to accumulate the most coins during bull runs, the majority plan to sell them at some point. Eventually, we will reach a period when the hype around new(ish) industry trends (e.g., NFTs, Play-to-Earn, DeFi) decreases significantly, or a potential black swan event takes place, triggering a massive sell-off the already exhausted market won't be able to quickly recover from.
On the other hand, there will also be a point in a bear market or a stagnant period when demand significantly surpasses the supply, leading to a bull run. And, from Bitcoin's halving and a rise in institutional adoption to new crypto use cases, a wide range of events can turn investors' sentiment from bearish to bullish.
For these reasons, the crypto winter is a completely healthy part of the market's cycle. It's normal that prices are falling. They will eventually recover and reach new highs in a bull run that follows the current bearish period.
Fun fact: Throughout its nearly 14 years of history, Bitcoin has recovered from all crypto market crashes to date, from which some led to losses of above 80%.2
Preparing for the Next Bull Run
In the last section, we have explored that crypto winters are normal for the industry's long-term health. Now, let's take a look at some key trends and events indicating that the market is already preparing for an incoming bull run.
Developer Activity and Talent Shortage
Web3, a crucial crypto sector with the goal to decentralize and democratize the internet, reached an all-time high in terms of developer activity in 2021.
According to Electric Capital's report, over 34,000 new developers joined the market, and more than 18,000 monthly active devs committed code in open-source crypto and Web3 projects (both figures are all-time highs).3
Description: While Web3 network value dropped 83% from 2017’s bull market highs by early 2019, the number of monthly developers remained relatively the same.
Furthermore, there is a massive shortage of Web3 talent, which many industry experts believe could cause significant delays and backlog for the sector's projects.4 According to a report by TrueUp, there were nearly 10,000 crypto and Web3 openings in June 2022, representing 2.4% of all the tech jobs on the company's platform.5
Growing Crypto Adoption
Since we are part of an emerging industry, crypto adoption is a crucial indicator of the state of the market.
Description: With a drop from last year’s second quarter, global crypto adoption remains at pre-bull market levels.6
While many expected this figure to fall rapidly amid the winter, a recent Chainalysis report revealed that its global digital asset adoption index score in Q2 2022 stayed well-above pre-bull market levels. Despite a drop from Q2 2021's all-time high, this trend confirms the industry's resilience even during times of decline.
Furthermore, we can also observe a growth in crypto usage for shopping and everyday transactions. As the number of large brands accepting digital assets increases with new players like Subway and McDonald's, cryptocurrency payment processors report significant volume surges.7,8
While Visa's crypto-linked card usage grew to $2.5 billion in the financial giant's fiscal Q1 2022, BitPay's monthly transaction count jumped over 15% in September, and CoinsPaid roughly doubled both the volume and number of transactions between Q3 2021 and Q3 2022.9,10,11
Moreover, the crypto winter poses no barrier for all the Web3 conferences and meetups. From Blockchain Expo and ETHDenver to Token 2049, industry players and community members can attend over 20 high-profile events by the end of 2023 to discuss, gain valuable insights, and spread the word about cryptocurrencies.
On top of all this, while regulators' stance may change due to FTX's collapse amid allegations that the firm used clients' money to fund its operations, there have been some notable advancements on the regulatory front in the past few months.12
In addition to Dubai's crypto-friendly laws in February, Australia's Treasury plans to roll out "a robust" framework next year.13,14 Simultaneously, cryptocurrency regulation has also made decent progress in the US during the current bear market, with multiple draft legislations – including the DCCPA and the RFIA – to be discussed by members of Congress.15,16
Moreover, the prime minister of Saint Kitts and Nevis recently announced its plans to make Bitcoin Cash (BCH) the Caribbean nation's legal tender by March 2023.17 If the government's move is successful, St. Kitts will join El Salvador and the Central African Republic as the third country to adopt a major digital asset as an official currency.
Crypto Winter: A Necessary Evil
Over the year that has passed since its start, prices have taken a huge hit, several black swan events have occurred, and numerous cryptocurrency firms have become insolvent.
However, as this is a healthy part of the crypto market cycle, we should use this period to our advantage and start building. Instead of fearing the "winter," industry players should embrace it and prepare for the next bull run.
In fact, every bear market is a necessary evil that eliminates the low-quality and mediocre projects and companies failing to add value to the industry. On the other hand, DRENGR and many other teams are building innovative products and solving crucial pain points. This will help us survive the crypto winter and gain increased attention from people around the world.