A Colder Crypto Winter? How the Latest Meltdown Affects Bitcoin And Ethereum Prices

The cryp­tocur­ren­cy mar­ket is melt­ing down. But it’s also in the deep freeze of this year’s cryp­to win­ter.

Novem­ber was a cat­a­stroph­ic month for cryp­to, even by its own volatile stan­dards. FTX, one of the biggest and fastest cryp­to exchanges in the world, rocked the cryp­to world to its core when it filed for bank­rupt­cy Nov. 11. Bitcoin’s price dropped from over $20,000 to under $16,000 in a mat­ter of days, and it still hasn’t recov­ered. Ethereum saw a sim­i­lar decline, falling from above $1,600 to below $1,200 as the dra­ma unfolded.

And the fall­out isn’t done yet.

FTX’s implo­sion seems to have been only the begin­ning, with Block­Fi fil­ing for bank­rupt­cy ear­li­er this week. Oth­er cryp­to enti­ties, includ­ing major lenders like Gen­e­sis Glob­al Trad­ing, are try­ing to stay afloat and avoid their own bankruptcies.

“They’re all inter­twined, because there’s a lot of con­nec­tiv­i­ty in the DeFi space,” said Chris Kline, CRO and co-founder of Bit­coin IRA, a dig­i­tal asset tech­nol­o­gy plat­form for indi­vid­ual retire­ment accounts. “It’s not a huge mar­ket yet so one affects the others.”

We’re just about a month out from this being the longest cryp­to bear mar­ket so far. Like pri­or cryp­to win­ters, today’s bear mar­ket is marked by price drops of near­ly 80% since the pre­vi­ous all time high. But unlike pri­or win­ters, the eco­nom­ic cir­cum­stances sur­round­ing the cur­rent mar­ket are much more fraught. Infla­tion is at his­toric highs, lay­offs are increas­ing, and a poten­tial reces­sion may be head­ed our way. More­over, mount­ing scruti­ny over FTX’s bank­rupt­cy is turn­ing reg­u­la­tors’ eyes toward cryp­to more than ever. 

For cryp­to investors look­ing for guid­ance, the ques­tion is: What do these bank­rupt­cies mean for the cryp­to win­ter, which had already been hold­ing prices down through­out the year?

What Is the Effect of FTX’s Collapse On Crypto Winter?

The col­lapse of FTX prob­a­bly deep­ened the lows we’ve seen this year, Kline said, but it’s impos­si­ble to say with cer­tain­ty whether it’ll pro­long the cur­rent bear market.

Cryp­to prices had been on the rise before the fall of FTX: bit­coin was just reclaim­ing $20,000 while ethereum went above $1,600 for the first time in more than a month. But FTX’s bank­rupt­cy, which came swift­ly fol­low­ing a bomb­shell Coin­desk report that was pub­lished on Nov. 2, pulled those prices down to fresh lows. 

“FTX is a lit­tle dif­fer­ent from the oth­er bank­rupt­cies in this space,” Kline said. “In my opin­ion, there’s much more prob­a­bly malfea­sance and fraud hap­pen­ing on the FTX side … I think it dam­aged the public’s trust.”

Cryp­to is a retail-dri­ven asset class, so pub­lic trust is huge in this ecosys­tem. “The trust fac­tor is going to be huge as we bring those par­tic­i­pants back into the mar­ket­place or into the mar­ket­place for the first time,” Kline said.

What Will It Take For Crypto Winter to End?

Cryp­to prices are unlike­ly to see major recov­ery with­out new or return­ing investors bring­ing cash back into the mar­ket. But these recent bank­rupt­cies aren’t the only rea­son cryp­to prices have fall­en back down.

First was crypto’s crash dur­ing the sum­mer when sta­ble­coin ter­raUSD col­lapsed in May, bring­ing cryp­to token luna down with it. Then there was a string of bank­rupt­cies of large lenders and hedge funds, includ­ing Three Arrows Cap­i­tal, Cel­sius, and Voyager. 

Tack poor macro­eco­nom­ic head­winds to those fail­ures and you have all the hall­marks of a down­trod­den market. 

Eco­nom­ic bomb­shell after bomb­shell dropped this year, which have con­tin­u­ous­ly worked to depress cryp­to prices. An ongo­ing pan­dem­ic, geopo­lit­i­cal con­flict in Europe, ram­pant infla­tion, and a poten­tial reces­sion are all macro­eco­nom­ic head­winds that have caused mar­kets to dip in 2022. 

“All of these fac­tors are just cre­at­ing eco­nom­ic pres­sure, where it’s real­ly dif­fi­cult for cryp­to or any oth­er risk asset to rebound,” said Char­lene Fadi­re­po, Founder and CEO of Guide­fi, a fin­tech plat­form that helps women and pro­fes­sion­als of col­or find finan­cial advisors. 

Experts agree that eco­nom­ic pain points need to ease up in order for the cryp­to mar­ket to lift back up. From the per­spec­tive of your every­day investor, it’s real­ly hard to invest in some­thing so shaky right now.

“If Amer­i­cans can’t pay for food, can’t pay for gas, are hav­ing trou­ble afford­ing hous­ing, we’re going to be less like­ly to put our mon­ey into spec­u­la­tive assets,” said cryp­to expert Wendy O, founder of Cryp­toWendyO media.

That means infla­tion needs to come down, and, after it does, the Fed­er­al Reserve needs to ease up on inter­est rates so the U.S. econ­o­my can flour­ish again. That’ll give investors more eco­nom­ic band­width to invest in riski­er assets and pro­mote the next cryp­to bull run. 

When Will the Crypto Winter End?

No one can say for sure, but giv­en the cur­rent eco­nom­ic tra­jec­to­ry and recent string of bank­rupt­cies, experts don’t think it’ll end any­time soon. We’ll be here until at least mid-2023, and it’ll prob­a­bly take more time than that to come out of this bear mar­ket, accord­ing to Fadirepo. 

That said, there are sim­i­lar­i­ties between this cryp­to win­ter and pri­or ones that point to 2024 as the next time this mar­ket might boost back up. Name­ly, the mar­ket seems to be repeat­ing the same four-year cycle again and again.

“At the core, you have what has seemed to become the nat­ur­al cycles of cryp­to,” Kline said. “It has large runs, it has large falls, it has win­ters, it has bull runs, and it’s shown this cycle three or four times now. That’s fun­da­men­tal­ly how this asset class seems to behave as it’s emerging.”

Some experts say the next bit­coin halv­ing will be a major upwards push. The bit­coin halv­ing event, which takes place every four years, occurs when the reward for min­ing bit­coin trans­ac­tions is cut in half. This reduces the rate at which new coins are cre­at­ed and, as a result, tends to push bitcoin’s price up. It’s not an exact sci­ence, but the cur­rent esti­mate is that the next halv­ing will take place in ear­ly to mid-2024. 

“Peo­ple always joke that cryp­to has been announced dead a thou­sand times by the media, and every time it comes back” Kline said. “We’ll see all time highs again, this is crypto’s nature.”

What Should Crypto Investors Do Right Now?

Whether you’re a cur­rent investor or look­ing to get start­ed with cryp­to, now is a good time to do some homework

FTX’s implo­sion high­lights the risks of invest­ing in the cryp­to mar­ket and serves as a good reminder to care­ful­ly read and under­stand the terms of ser­vice and user agree­ments of your exchange and your wallet.

If you don’t have a cryp­to wal­let, now may be a good time to con­sid­er get­ting one. Cold wal­lets are usu­al­ly the most secure option, as they hold your tokens on hard­ware that isn’t con­nect­ed to the inter­net. In con­trast, hot wal­lets are acces­si­ble online which means they’re more vul­ner­a­ble to cyber attacks.

Experts rec­om­mend that you ded­i­cate only 3–5% of our invest­ing port­fo­lio to cryp­to and to invest only what you’re OK with losing. 

If you haven’t entered this mar­ket yet but are think­ing about it, it’s a good time to get acquaint­ed with the var­i­ous ecosys­tems, the tech­nol­o­gy that pow­ers cryp­to, and the new and excit­ing projects in the pipeline, includ­ing NFTs, web3 and the metaverse.

“It’s a fan­tas­tic time to take the time to invest in edu­ca­tion and the space, to make sure you’re com­fort­able, and to decide what lev­el of cryp­tocur­ren­cy invest­ing is right for your finan­cial sit­u­a­tion and for your time­line,” Fadi­re­po said. “It’s a fan­tas­tic time to decide if bit­coin is right for you … bit­coin is on sale.”