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August 16, 2022

Are We In Crypto Winter?

The phrase “crypto winter” is now on the lips of every crypto trader. Since the height of a tremendous surge in 2021, the value of cryptocurrencies has plummeted by $2 trillion this year.

Bitcoin, the largest digital currency in the world, is down 70% from its November record high of about $69,000.

Consequently, some analysts have warned of a protracted bear market dubbed as “crypto winter.” The latest occurrence of this kind happened between 2017 and 2018.

In contrast to past crypto market downturns, the most recent cycle has been characterized by a series of events that have spread across the sector due to their linked nature and business tactics.

The rise of centralized lending schemes and so-called “decentralized finance,” or DeFi, an umbrella term for financial products produced on the blockchain, allowed crypto investors to amass enormous sums of leverage.

It is unclear when market volatility will fully subside. Nonetheless, experts anticipate more suffering as crypto companies struggle to pay down their debts and execute customer withdrawals.

Crypto exchanges and miners might be the next dominoes to fall, according to James Butterfill, director of research at CoinShares.

Butterfill said, “We believe that this suffering will spread throughout the congested exchange business.” Given the crowded nature of the market and the fact that exchanges depend to some degree on economies of scale, the present situation is likely to produce further fatalities.

Even established firms such as Coinbase have seen the effects of decreasing markets. To save on expenses, Coinbase lay off 18% of its staff last month. In recent times, the U.S. crypto exchange has seen a precipitous decline in trade activity as digital currency values have declined.

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In the meanwhile, Butterfill said that crypto miners who depend on specialized computer equipment to resolve transactions on the blockchain might also be in difficulties.

Last week, he said in a research note, “We have also observed cases of possible stress when miners have purportedly not paid their power bills, perhaps pointing to cash flow concerns.”

This is probably why some miners are selling their shares.

It is costly for miners to do their duties, not only in terms of the equipment itself but also in terms of the power required to keep their machines operational around the clock.