A Colder Crypto Winter? How the latest meltdown is affecting Bitcoin and Ethereum prices

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

November was a disastrous month for crypto, even by its own volatile standards. FTX, one of the largest and fastest crypto exchanges in the world, shook the crypto world to its core when it filed for bankruptcy on November 11th. Bitcoin’s price fell from over $20,000 to under $16,000 in a matter of days and has yet to recover. 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 appears to have been just 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 big market yet, so one affects the others.”

We are about a month away from this being the longest crypto bear market so far. Like previous crypto winters, today’s bear market is characterized by price drops of almost 80% since the previous all time high. However, unlike previous winters, the economic circumstances surrounding the current market are much more onerous. Inflation is at historic highs, layoffs are increasing, and a potential recession could be on the way. Furthermore, the growing scrutiny of FTX’s bankruptcy is turning regulators’ eyes on 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 kept prices down throughout the year?

What is the effect of FTX’s collapse on crypto winter?

The collapse of FTX likely exacerbated the declines we’ve seen this year, Kline said, but it’s impossible to say for sure whether it will prolong the current bear market.

Crypto prices had been on the rise before the FTX drop: bitcoin just reclaimed $20,000 while ethereum went above $1,600 for the first time in more than a month. But FTX’s bankruptcy, which came quickly after a bombshell Coindesk report published on November 2, dragged those prices down to new lows.

“FTX is a little different than the other bankruptcies in this area,” Kline said. “In my opinion, it’s much more likely that abuse and fraud is happening on the FTX side … I think that 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 these participants back into the market or into the market for the first time,” Kline said.

What needs to happen before the crypto winter ends?

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

First was the crypto crash over the summer when stablecoin terraUSD collapsed in May, bringing crypto token luna down with it. Then there were a series of bankruptcies by major lenders and hedge funds, including Three Arrows Capital, Celsius and Voyager.

Add adverse macroeconomic headwinds to these failures and you have all the hallmarks of a depressed market.

Financial bomb after bomb dropped this year, which has 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 fall in 2022.

“All of these factors are only creating financial pressure, where it’s very difficult for crypto or other risky assets to recover,” said Charlene Fadirepo, founder and CEO of Guidefi, a fintech platform that helps women and professionals of color find financial advisors.

Experts agree that financial pain points must ease for the crypto market to pick up again. 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, have trouble affording housing, we’ll be less likely to put our money into speculative assets,” said crypto expert Wendy O, founder of CryptoWendyO media.

That means inflation has to come down, and after it does, the Federal Reserve has to cut interest rates so that the US economy can flourish again. It will give investors more financial bandwidth to invest in riskier assets and foster the next crypto bull.

When will crypto winter end?

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

That said, there are similarities between this crypto winter and previous ones that point to 2024 as the next time this market could surge again. The market seems to repeat the same four-year cycle again and again.

“At the core, you have what seemed to be the natural cycles of crypto,” Kline said. “It’s got big runs, it’s got big falls, it’s got winters, it’s got bull runs, and it’s been shown this cycle three or four times now. That’s basically how this asset class seems to behave when it emerges.”

Some experts say the next bitcoin halving will be a big upside. The bitcoin halving event, which takes place every four years, occurs when the reward for mining bitcoin transactions is halved. This slows 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 occur in early to mid-2024.

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

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 wallet.

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

Experts recommend that you only dedicate 3-5% of our investment portfolio to crypto and only invest what you are okay to lose.

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

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