Cooling Prices Seen Helping More Sustainable Projects. Why We Should Welcome Another Crypto Winter
Vitalik Buterin, co-founder of the Ethereum blockchain, says the digital-asset universe may actually benefit from the current retreat in coin prices that’s cast a chill on investors and is being referred to as another crypto winter.
“The people who are deep into crypto, and especially building things, a lot of them welcome a bear market,” Buterin said during an interview with Bloomberg. “They welcome the bear market because when there are these long periods of prices moving up by huge amounts like it does — it does obviously make a lot of people happy — but it does also tend to invite a lot of very short-term speculative attention.”
Cryptocurrency prices have tumbled since reaching record highs in early November as investors and speculators anticipate a reduction of the massive amounts of stimulus added to economies and global markets in the wake of the Covid pandemic. The Bloomberg Galaxy Crypto Index is down about 45% from its all-time high. Ether, the native currency of the world’s most widely used blockchain, has slumped around 40% during the same period.
Since the last “crypto winter” in 2018, the sector has boomed. The price tracking website CoinGecko lists a staggering 12,588 tokens. The large amount of money invested during the latest crypto bull run may have created many overnight millionaires or billionaires stories, but one’s gains in crypto is often also another’s losses and pain.
Market manipulation schemes such as those referred to as pumps and dumps were often found in crypto applications run by people who were only in crypto for the short-term profits.
“The winters are the time when a lot of those applications fall away and you can see which projects are actually long-term sustainable, like both in their models and in their teams and their people,” the 28-year-old crypto billionaire said.
Yet Buterin, who said he’s “surprised” by how the market has moved since last year, isn’t sure whether crypto has entered another winter or the sector is just mirroring the volatility in broader markets.
“It does feel like the crypto markets kind of flip the switch from being this niche group that’s controlled by a very niche group of participants and it’s fairly disconnected to traditional markets into something that behaves more and more like it is part of the mainstream financial markets,” he said from Denver on Feb. 12.
He also added that a crypto winter can also help those who are building projects in crypto focus on improving the technology.
Buterin’s comments came not long after the popular crypto protocol Wormhole, a cross-blockchain bridge, was hacked for over $300 million. Buterin back in January warned about the risks of using cross-blockchain bridges.
So-called cross-blockchain bridges often work by taking a cryptocurrency on one blockchain and locking it in a software program known as a smart contract to issue a parallel cryptocurrency on another blockchain.
Buterin has shifted his focus to scaling Ethereum in recent years. The popular blockchain has long suffered criticism because transactions on Ethereum can be slow and expensive. Buterin’s Ethereum Foundation is leading the latest efforts dedicated to improving the blockchain’s scalability with perhaps the most important upgrades in Ethereum’s history.
“When everyone is again trying to use blockchains,” Buterin said. “We don’t want them to discover yet again that no, actually, there isn’t enough space on the chain for everyone.”
Winter Is Coming! Here Are 5 Ways To Survive A Crypto Bear Market
The multi-month pullback in prices is giving investors flashbacks of the 2018 crypto winter. Here are 5 things to survive a bear market.
The cryptocurrency market has an interesting way of catching even the most seasoned veterans off guard as each bull and bear market initially shows similarities to previous cycles only to veer off in an unexpected direction and wipe out the fortunes of newly minted crypto millionaires.
This was the case with the weak close of 2021, which completely went against the bullish $100,000 Bitcoin (BTC) price estimates that crypto analysts and influencers were peddling nonstop.
Currently, Bitcoin price is more than 50% away from its $69,000 all-time high and altcoins have fared worse, with many down more than 60% in the last two months. In times like these, traders need to regroup and re-evaluate their investment strategy, rather than just buying every price dip.
Here are five strategies traders can use to survive an unexpected crypto winter and retain as much value in one’s portfolio as possible.
Reduce Exposure To Highly Volatile Altcoins
Once a widespread market downturn commences, the first step to take is to reevaluate current positions and reduce exposure to the most volatile assets.
Oftentimes these are new projects that have come out of the trending sectors of the crypto market such as meme coins, NFTs or rebase projects like Wonderland (TIME) because many of the token holders are new to the community and not long-term investors like the user bases for more established projects.
A good way to begin the evaluation process is by looking at a project’s GitHub account to see the level of activity and the number of developers dedicated to building out the protocol.
If there is hardly any development despite flashy marketing gimmicks and big promises, the project may be one an investor should cut when the market begins to lose momentum.
Traders could then put these funds in stablecoins that can be staked to earn yield or buy future market dips.
Dollar-cost averaging (DCA) is the process of buying an asset in tranches over time to average out the price paid and account for volatility-induced changes in price.
While DCA strategy is a good way to increase exposure to fundamentally sound projects over time, it is usually best to wait until after the dust has settled somewhat and a period of consolidation has commenced.
The focus of dollar-cost averaging should be on projects that have active development, engaged communities and a roadmap that lays out how the project will continue to grow and remain viable in the future.
Staking is perhaps the simplest way to increase the value of a portfolio long-term and it removes the pressure of obsessing over daily price fluctuations since the staked asset is continuing to accrue tokens.
Most layer-1 protocols offer the ability to stake their native token on the network to earn a yield, including Solana (SOL), Cardano (ADA), Polygon (MATIC) and Avalanche (AVAX).
Ether holders can also stake their tokens on the beacon chain for Eth2, but it’s important to note that staking rewards will not be able to be claimed until Eth2 is fully launched.
There are many other staking options out there from gaming protocols like Axie Infinity and Illuvium to NFT marketplaces like LooksRare, so once a deep dive has been made and fundamentally sound projects are chosen, staking becomes a matter of setting it and forgetting it.
Find Projects With Growing Ecosystems And Perks
Projects that help token holders earn via staking, liquid staking, borrowing and airdrops are also worth considering when the market turns bearish.
Staking is the simplest form of this as the number of tokens increases over time, but other options include token launchpads, NFT marketplaces and protocols known for offering airdrops to community members.
One example of a protocol where early adopters are being rewarded is the Cosmos (ATOM) network and its growing community of projects connected via the Interblockchain Communication Protocol (IBC).
ATOM stakers and those who have engaged with the Osmosis (OSMO) decentralized exchange have been rewarded with a long list of airdrops from projects launching within the ecosystem as a way to help bootstrap activity within their communities.
Invest In Yourself
One of the most personally beneficial things an investor can do during a down market is to invest in themselves by learning something new.
Not only will this help investors to avoid the urge to sell and miss out on future gains, but it can also lead to new avenues to build wealth.
Despite the market downturn, cryptocurrencies continue to advance along the path to mass adoption and the number of jobs in the blockchain sector is only going to increase moving forward.
Whether it’s learning to program in Solidity, experimenting with graphic and digital design to create a new line of NFTs or just doing research to gain a deeper understanding of the various sectors of the market.
Ultimately, the key to surviving a bear market is staying positive and being patient.
Crypto Winter 2022: Here’s What Crypto Industry Veterans Expect
Industry executives predict that the next Bitcoin bull run is likely to happen in 2024 or early 2025, tied to Bitcoin’s fourth halving.
As the total cryptocurrency market capitalization dipped below $2 trillion last week, major crypto executives have been increasingly talking about a potential continuous bear market or a “crypto winter.”
Contrary to the expectations of many in the crypto market, Bitcoin (BTC) failed to surge above $68,000 in 2021 and continued dropping below $40,000 in early 2022, causing significant losses for big crypto investors such as MicroStrategy.
However, a possible crypto winter could be pretty helpful for the industry by giving a boost in improving the technology, according to Vitalik Buterin, co-founder of the Ethereum blockchain.
Lower cryptocurrency prices could contribute to nurturing long-term sustainable projects while removing short-term speculative attention, Buterin said in a Bloomberg interview on Saturday:
“The winters are the time when a lot of those applications fall away and you can see which projects are actually long-term sustainable, like both in their models and in their teams and their people.”
The 28-year-old cryptocurrency billionaire pointed out that people who are “deep into crypto, and especially building things,” actually welcome a bear market.
“They welcome the bear market because when there are these long periods of prices moving up by huge amounts as it does — it does obviously make a lot of people happy — but it does also tend to invite a lot of very short-term speculative attention,” Buterin added.
If true, cryptocurrency projects will definitely have enough time to improve technology until the next rally as some crypto experts believe that the next bull market will not arrive until late 2024.
Du Jun, co-founder of Huobi crypto exchange, believes that the next Bitcoin bull run will not happen until 2024 and is likely to occur after Bitcoin’s fourth halving, which is expected to take place in July 2024.
All three previous BTC halvings, including the previous one that happened in 2020, triggered subsequent growth of the Bitcoin price due to a programmatic slow down in the new BTC supply. Occurring only once every four years, the upcoming Bitcoin halving will reduce the Bitcoin block reward from 6.25 BTC to 3.125 BTC.
Pointing to a massive crypto winter of 2018, which followed the second Bitcoin halving and a subsequent rally in 2017, Du stressed that the crypto market has been moving in cycles tied to halvings, stating:
“If this circle continues, we are now at the early stage of a bear market. Following this cycle, it won’t be until the end of 2024 to the beginning of 2025 that we can welcome the next bull market on Bitcoin.”
Du added that it’s very difficult to predict the crypto market cycles exactly because there are many other factors, including geopolitical issues such as war, COVID-19 and others.
Previously, Jirayut Srupsrisopa, CEO of major Thailand-based crypto exchange Bitkub Capital Group Holdings, also predicted that a “golden period” for Bitcoin and wider crypto markets will take place in 2024 due to the BTC halving.
In late 2021, Kraken CEO Jesse Powell was also talking about a potentially looming crypto winter, stating that anything under $40,000 was a “buying opportunity.”
At the time of writing, Bitcoin is trading at $37,653, down over 33% over the past 365 days, according to data from CoinGecko.