Crypto winter is coming – but it will be a ‘warm winter’, says VC firm

A crypto winter is here, but it’s going to be a “warm winter,” according to a crypto bull.

Bitcoin may have fallen by more than half from record highs, but “it’s so much more than that,” said Edith Yeung, a general partner at Race Capital.

“Somehow the ‘warm winter’ is going to push everyone out as real [wants to be] there for short-term gain,” she told CNBC’s Street Signs Asia last week, stressing that cryptocurrency is a long-term play.

The term crypto winter refers to an extended period of depressed digital coin prices in the market.

Cryptocurrencies have lost around $1.9 trillion in value since the height of a massive rally in 2021.

Bitcointhe world’s largest digital coin, is about 68% off its all-time high of nearly $69,000 in November.

Yeung said she remains bullish long-term on digital tokens because the appeal lies in the fact that “crypto is really about Web3.”

Web3 has become a buzzword among those in the crypto industry. Proponents say it is the next generation of the internet, one that is “decentralized” and not owned by a few big tech giants.

Proponents suggest crypto and blockchain technology could be a big part of that. For example, a Web3 service may run on a specific blockchain such as ethereum or solana. Users may be required to have tokens tied to these blockchains in order to use a particular service or even have ownership in that app or company.

“I think it’s a whole generation of the internet [users who] really believe that “you can’t monetize my data anymore … the internet should be owned by us,” Yeung told CNBC.

“That’s why there’s such a push with crypto because the ownership of ethereum or solana is really the user who owns that piece of token, which is just part of that internet.”

Although Yeung hinted that it would be a “warm winter” for the crypto market, the problems facing the industry so far have been unprecedented.

The nearly $2 trillion fall in the value of cryptocurrencies was triggered by the sudden collapse of an algorithmically stable coin called terraUSD that saw its sister token luna become worthless. Several crypto firms, including the now-bankrupt hedge fund Three Arrows Capital, had a large exposure to terraUSD.

Meanwhile, lending firms like Celsius, which took on risky trading games, faced liquidity problems and also filed for bankruptcy.

These issues have led to contagion across the cryptocurrency industry.

James Butterfill, head of research at CoinShares, is a skeptic of the term “warm winter.” The crypto winter has been “brutal,” he said, referring to the fall of Three Arrows and the drastic drop in bitcoin prices.

“Bitcoin prices have fallen by 74% peak to trough at one point – this closely matches the 83% decline seen in 2018 and must be taken in the context of the fact that the market is significantly larger and has a much broader investor base now than it had back then. in 2018,” Butterfill told CNBC in an email Monday.

The biggest challenge right now for crypto lies in the uncertainty surrounding the Fed’s monetary policy and whether the central bank will slow the pace of rate hikes, said Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank.

Markets await Federal Reserve Chairman Jerome Powell’s speech on the Fed’s next policy move at the Jackson Hole summit on Friday. Any slowdown in the rate of rate hikes could be positive for crypto markets, Hasegawa said.

“I think the Fed will have to gradually face and address some signs of economic slowdown soon, so my medium-term outlook is somewhat optimistic,” Hasegawa said.

Meanwhile, Butterfill pointed out that it is challenging to predict the Fed as the economic picture remains mixed.

“A move to become less hawkish could be very supportive for Bitcoin prices. As hawkish Fed policy set off this December/January bear market, a dovish stance could see it break out of the $20,000-$25,000 trading range,” said he.

Ether, the world’s second largest cryptocurrency after bitcoin, is the token native to the ethereum blockchain. Sol is the original cryptocurrency of solana, a public blockchain that supports decentralized financial apps that aim to replicate traditional financial systems, such as banks and exchanges.

Asked whether ethereum has stronger underlying fundamentals than bitcoin, Race Capital’s Yeung said the two cryptocurrencies are “very different.”

“Bitcoin is a digital gold,” she pointed out, saying that ethereum and solana are similar to “decentralized cloud services” where applications are built on the blockchain network but run by “many, many people.”

Ethereum and Solana are blockchains that position themselves as a platform developers can build apps on top of. Bitcoin, meanwhile, was set up to be a payment service and is therefore different from Ethereum and Solana.

Ether has so far outperformed bitcoin since both digital coins bottomed out in June due to a long-awaited ethereum network upgrade.

— CNBC’s Arjun Kharpal contributed to this report.