After $2tn was wiped from the crypto market cap earlier this year, it triggered what’s known as a ‘crypto winter’. Market cap (capitalization) measures the total value of cryptocurrencies, and is calculated by multiplying price against the number of coins in circulation. It’s a key indicator for investors to determine the desirability of cryptocurrencies, the primary factor in price valuation.
However, the market has been here before. Read on to find out how the crypto market crashed and why that’s no reason to abandon ship altogether.
The last crypto winter lasted between January 2018 and December 2020. According to experts, winters are usually triggered when the price of Bitcoin (BTC), the original and most-traded cryptocurrency, reaches an all-time high and is then sold off in volumes. At this point, investors looking to capitalize on peak returns begin to cash out, causing the price to go down.
As more BTC holders notice the fall in price, a domino effect takes place, driving the price down further. That’s exactly what happened in November 2021, when Bitcoin reached a record $68,000 and its market cap peaked at $3tn. From November onwards, the crypto market has experienced a gradual decline. But, while Bitcoin’s the biggest that is alway going to fall hardest, it isn’t always the first to go.
In May 2022, just days after it became the third-largest stablecoin (and before Bitcoin experienced any serious fluctuations in value), Terra Luna’s algorithmic stablecoin, Terra USD (UST), crashed.
Investing in stablecoins is often viewed to be safe and secure as they’re value is tied to traditional fiat currencies. Currencies are generally more predictable and less volatile than cryptocurrencies like Bitcoin, but no stablecoin is guaranteed to remain tied to a currency forever.
The Terra Luna crash was catastrophic. Its value plummeted by 99.9% overnight, falling from 1:1 USD to 0.03:1 USD. How? The coin was devalued after vast quantities of UST were dumped on Curve, a stablecoin exchange, and Anchor, Terra’s lending protocol. What’s more important is how the LFG (Luna Foundation Guard) responded.
Intending to reverse the negative impact of the crash, LFG sold off vast quantities of Bitcoin (BTC). Instead, as we’ve seen previously in the event of extreme sell-offs, BTC’s value dropped significantly, triggering a domino effect that would ripple throughout the market.
Fast forward six months, however, in early July 2022, and led by Bitcoin, the crypto market cap once again recovered. In a short space of time, the market amassed $50 billion, rising from $864 to $914bn and climbing almost 6% in a single day.
Personal financial situations are now considerably worse than pre-pandemic levels, with consumer confidence hitting a record low in the UK for the second consecutive month. According to the United Nations, global inflation is expected to exceed 6% this year.
Amidst a wider climate of instability and uncertainty, it’s no surprise that the crypto market has suffered and investor confidence is down. As a consequence, a worldwide pattern of rising consumer prices has emerged and wage growth is failing to keep up.
Negative attitudes towards crypto investment have also affected global markets. While decentralized and unregulated, the crypto market still moves according to the traditional financial system. That’s never been more true, as cryptocurrencies are traded like stocks and bonds.
Currently, the stock market is experiencing the same instability in what’s known as a ‘bear market’. A bear market is the conventional equivalent of a crypto winter, where falling prices encourage sales. It’s not just average households but big investors that are feeling the pressure, too, and high sell-offs can be expected.
In the cryptosphere, periods of uncertainty elicit calls of ‘FUD’: fear, uncertainty, and doubt.
Bitcoin has crashed twice in the past eight years, falling by as much as 80% in 2018. Having successfully recovered on both occasions, its price today still remains higher than peak levels previously experienced in December 2017.
Before the crypto winter thaws, many companies, especially businesses and start-ups, will need to adjust their business models in order to survive. Industry experts stress that Ethereum was first developed during the 2014 bear market, while Polygon, Avalanche, and Algorand all grew from the crypto winter in 2017, proving that good can come from a seemingly bad situation.
Although it’s likely to take time for the crypto market to reach a stable growth trajectory, positive recovery is a significant reason why not to lose faith.
Trading continues, and many investors still see crypto as a huge investment opportunity.
Experts suggest that ‘blue-chip cryptocurrencies’, such as Bitcoin and Ethereum, will survive because of their size, status, and reputation. This is further supported by the
precautionary measures likely taken by large businesses in the event of unexpected market changes, such as setting aside supporting funds.
Investor caution, however, forces firms with little to no cash reserves to adapt and grow organically, providing a more cost-effective and sustainable business model for the long-run.
With better planning, companies can expand their marketing efforts to provide the public with more accessible and informative reading materials. This will better educate the masses on Web3 as a whole, and introduce them to real-life use cases for crypto and blockchain technology.
Although the crypto crash impacted many, there remains a continual flow of investments in blockchain technologies, including those created by LOX.
LOX Network was founded with the aim of combating smartphone theft. Our all-in-one application, Smart LOX, allows owners to check the status of their device, as well as block, blacklist, and set bounties for the return of their lost or stolen devices.
Our hybrid blockchain uses a unique dual-NFT model to provide the world’s first global decentralized blacklist for lost and stolen devices, putting the power of device ownership in the hands of rightful owners.
While we’ll never be able to accurately predict future fluctuations in the value of Bitcoin, we do know that blockchain technology is supporting the most exciting innovations in tech right now…and that’s not going to change any time soon.
Read more about LOX’s products here.
that’s fuelling innovations like SmartLOX, our mobile device security app.