Crypto Winters: A Comparison Between 2018 And Now

Cryptocurrency – for those who have taken the time to build a strategy and grow acclimated to the volatile market – can be rewarding. As a result of that same volatility, it can also be stressful, and while some investors can make significant returns, others can find themselves falling by the wayside.

This is part of the reason why there are consistently arguments for and against investing – there is a balancing act between investors who are making good on a plan and those who have edged more toward emotional investments, which could lead to losses.

With that being said, however, it is not always a balancing act. Right now, the cryptocurrency market is going through something which is known as a crypto winter – where prices across the board are low, and sizable investments have become scarce for seasoned investors and amateur investors alike.

Coming Full Circle

In many ways, it is a worrying time for the concept of crypto itself, especially with the rise of Web3 closing in on the horizon. With the volatile market and the wider-world repercussions keeping tokens such as Bitcoin and Ethereum down, there is no real answer as to when things might brighten up again.

This has happened before, however. Back in 2018, cryptocurrency experienced a similar bear market, where coins such as Bitcoin dipped to as low as $3,236, with some users losing thousands of their investments. Three years later, however, Bitcoin hit a peak of $69,000, detailing how fast the market can shoot out of the winter and reach highs that would have been inconceivable at the time.

So what are the comparisons between the two, and is there anything the first crypto winter has taught us? In order to get the answers to this, it is first important to understand exactly what happened four years ago:

The Story Of 2018

The crypto winter of 2018 was largely induced by the biggest coin in the market, Bitcoin, which started off the year by dropping from $19,783 to $11,000. This was largely due to the rumours that South Korea and China were planning to ban crypto trading entirely. As well as this, Coincheck – which is Japan’s largest cryptocurrency OTC market – underwent a loss of $530M due to a hack of the system. This then led the network to suspend trading indefinitely, which further put a dent in the market as a whole.

In March 2018, irregular trades were made with compromised Binance API keys – a breach which pushed Facebook, Google and Twitter to ban advertisements of coin offerings and token sales. Following this, the market capitalisation for Bitcoin fell below the $100 billion mark for the first time in over a year, leaving the price to fall to $5,500 in November and then dip to a new low of $3,236 a month later. The winter itself lasted for a further two years, only ending in November 2020, when Bitcoin reclaimed a price of $20,00 before shooting up to $29,374 in December.

The Story Of Today

The total value of the market cap was $2.7 trillion in November, 2021. Nearly eight months later, that value had dropped to $1 trillion, a 62% fall which was instigated by two major things. For starters, the stablecoin Terra – which was supposed to be pegged to the US dollar – fell below its peg, which similarly dropped its sister coin, LUNA, from $116 to $0.0001. This shook a number of individuals and companies, with some even filing a class action lawsuit against Do Kwon, leading the US Securities and Exchange Commission to investigate the matter.

Following this, the Celsius Network – which was a crypto deposit where users could earn interest and be given loans based on their deposits – barred its users from transferring or withdrawing funds. According to a court filing, the company’s assets had plummeted by 80% in just over two months, leaving over a million of its users with considerable losses.

What Is Different?

One of the main differences between the 2018 and 2022 crypto winter is intrinsic to the growth of the system itself. The blockchain industry is constantly evolving, and it is a very different space compared to what it was four years ago. What was once a small group of networks has transformed into a number of connected ecosystems which now attract millions of users every day. Large institutions with heavy economic power now invest in digital coins, with Bitcoin adopted as legal tender in a number of countries – as well as potentially acting as a hedge against hyperinflation.

The nature of leverage was also different during the last crypto winter. A year before the first bear market, leverage was provided to retail investors via derivatives. This meant that when the crypto market fell, the positions opened by retail investors were liquidated onto exchanges which then exacerbated selling. In 2022, however, those retail depositors provided leverage to crypto funds – the same ones which froze and held back withdrawals – so when the market price fell again, the funds, lenders and users became forced sellers.

What Can Be Learned?

In many ways, this crypto winter is different because the market is different. It has grown exponentially, and with higher yields comes higher risk, meaning the crypto market is ironically in bad shape now because of how strong its shape became one year ago. But that doesn’t mean it is any worse – or better – than the crypto winter that came before. In fact, although circumstances are different – as well as the reasons for the crashes – there are distinct lessons that can be learned from the first bear market, which investors can take comfort in.

For starters, the first crypto winter turned out to be a good opportunity to separate the successful projects from the empty projects which were clogging the crypto train. Simply because the crypto market is struggling through a cold period, that doesn’t mean that the decentralised network as a whole is at threat, even though it may appear to be now. After 2018, the dApp industry and the expansion of the Web3 community continued to thrive, even in the immediate aftermath of the first crypto winter, demonstrating how it was actually an opportunity to depurate the market and lift the projects which deserved to be lifted.

The Way Forward

Another distinct lesson that should be noted is that, quite simply, the last crypto winter did not last forever. There were distinct, challenging reasons why cryptocurrency fell in 2018, but it remained resilient and grew to its highest high not three years later. The same should be true today.

It is not clear how long this particular crypto winter will last, but because of crypto’s resilient nature – as well as a gleaned maturity across several vertices –  it is likely that crypto’s strong position will not only return but be stronger than ever before. For investors, then, it is important to stand firm and make wise decisions when it comes to trading strategies and a varied portfolio. History tells us that crypto can bounce back stronger than ever before, so it is a question of when, not if, it will happen this time around.