Many cryptocurrency experts are warning about a crypto winter – a period of decreasing momentum within the industry. Think of it as a bear market, but for crypto. During the past several years, Bitcoin and other cryptocurrencies have steadily increased in value, but as more people entered the market, the price spiked, and now prices are falling.
It’s not the end of the crypto world, though. The last crypto winter occurred in 2019 and 2020. Rising interest rates will dampen the appetite for speculative investment. This will also make borrowing less appealing, triggering another crypto winter. In the meantime, long-term crypto enthusiasts should hunker down and wait it out.
What Exactly is Crypto Winter?
Crypto winters occur when prices of cryptocurrencies fall far below their normal bullish trend. A crypto winter is particularly harsh for small-cap coins. As Metaverse tokens and meme coins continue to get hammered. In June 2021, the prices of five famous cryptocurrencies fell below their market caps. While Bitcoin remained the top coin at 611 billion USD, Ethereum fell by 14.5% and Binance Coin lost 14.6% in value. Tether, on the other hand, was the least affected.
Related: McKinsey PDF Report on Metaverse
Traders should keep in mind the effects of crypto winters on their trading and investing portfolio. Some may find their transaction costs increase or experience longer wait times. This is where diversification is critical. It can help prevent portfolio volatility. In addition to diversifying your holdings, you can also invest in stablecoins to protect against volatile gas fees.
While the price of bitcoin has fallen by 60% since its peak in August 2022, interest in digital currency has not waned. A PYMNTS survey found that more than 50% of consumers are interested in crypto. As a result, the market may suffer another crypto winter. In the meantime, individual investors should keep an eye on the future of crypto and learn how to sustainably accept payments.
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Crypto Winter Presents Opportunities for Investors
In the event that a crypto winter does occur, it may be an opportunity for tax professionals and individual traders to expand their businesses. But to be effective, tax professionals must equip their practices with the appropriate tools to deal with new assets. There are many professional-focused tools available to support firms in increasing engagement and adding new crypto tax planning opportunities to their services.
While investors watching the crypto market should keep a close eye on this trend, they must also be careful not to get carried away with any promises made by scammers. While many cryptocurrency exchanges are in the midst of a crypto winter, they should use a secure wallet to store their funds. Those who choose a non-custodial wallet should make sure that they control the keys to their wallets.
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