What does a crypto recovery look like?

Important takeaways

• The crypto market began to fall from its peak price in November 2021, but technically did not enter a “winter” phase until June 13, 2022.
• Past trends would indicate that the crypto winter will last another three to four months, but it will take another three years for prices to recover their luster in November 2021. Relying on past trends can be a fool’s errand on such a new commodity.
• Government policies around the world are likely to affect crypto’s recovery, or lack thereof, and are partly to blame for the slow burn they have experienced through 2022. That may be bad for crypto, but good for the planet.

Cryptocurrencies have had a big down year. If they were a financially sound stock and you were a long-term investor, that would make this as good a time to buy. But cryptocurrency markets do not work like the stock market, making it difficult to assess whether crypto will ever recover.

Why crypto is not as easy to predict as the stock market

Crypto does not have a very long history. Bitcoin, the first of the current generation of digital currencies, was launched in 2009. The New York Stock Exchange, by comparison, started in 1792. We can easily look back at historical stock market trends, but we don’t have enough data for crypto. to understand how it works under different economic conditions.

In addition, cryptocurrency markets are less regulated than others, such as the stock market. While agencies such as the Securities and Exchange Commission and FINRA closely monitor investment companies in the stock market, crypto companies operate with relatively little oversight. That puts investors at additional risk, including the added risk of fraud and fraud.

Finally, cryptocurrencies operate outside the support of a major government or central bank. Unlike the US dollar and Euro, most cryptocurrencies derive value from the communities that use them. They are difficult to value and few are backed by dollar-denominated assets.

Unlike investing in stocks, there are no affiliate metrics that will provide a complete story of whether your crypto investment is “good” or not. While there are many methods of valuing a stock, analysts struggle to do so for digital assets such as bitcoin and ether.

A brief history of Crypto Winters

Crypto winter is a term similar to a bear market in the stock market. A crypto winter means a prolonged period of low asset prices compared to recent peaks. As of this writing, crypto prices are down significantly from their 2021 highs.

We have very limited data on crypto winters, as cryptocurrency has only seen two such events in the past that give us a meaningful comparison. While charting stock market patterns and looking for recurring ebbs and flows is easy, cryptocurrency is more challenging.

Crypto crash in 2018

Crypto – and Bitcoin in particular – soared in value in 2017. In January it was below $1,000, but by December it was up to nearly $20,000. This was not because it suddenly became more popular or demand increased, although many began to pay attention to it for the first time after this meteoric rise.

Because the price increase may have been partly driven by market manipulation by large investors, price changes may not always have been what they seemed. In particular, a user with a large wallet, known as a crypto whale, allegedly engaged in two types of manipulation:

1. Spoofing. When someone submits a fake crypto bid to increase demand, only to withdraw the bid after the price has been artificially inflated.
2. Wash trade. When someone buys and sells from themselves, the cryptocurrency appears to be trading hands and is being demanded at a higher price than it actually is.

The offense was so serious that the Ministry of Justice opened an investigation. After the artificial price increases, prices fell in spasms until November 2018, when the official crypto winter 2018 set in. The bear market officially started when the price of crypto assets was lower than what most crypto holders bought them for.

This bear market lasted for a total of about four and a half months. While crypto exited the bear market in early April 2019, it didn’t start gaining momentum again until a year later, in 2020, when the pandemic hit.

Our current crypto winter

Everyone has reacted differently to the pandemic, but in the beginning it was destabilizing for everyone. Many lost faith in their leaders and governments and latched onto cryptocurrencies for what they perceived as a “safer” investment than the infrastructure they saw closing down around them.

Over the next year, that bull run continued. But in the background, two of the biggest crypto-mining countries – Russia and China – began cracking down on energy-intensive mining via stricter guidelines in 2021.

This happened at the same time that global inflation was taking off, and rumors that the US central bank would soon raise interest rates had started to percoal. These circumstances caused investors to leave the crypto markets in droves.

Digital asset manager Grayscale Insights wrote that the fall from the peak market price began in November 2021, but we did not enter a true crypto winter – or bear market – until June 13, 2022.

What happens after a crypto winter?

Just because crypto moves out of a bear market doesn’t automatically mean prices will return to previous highs, not even close. The last time a crypto winter took place, investors had to wait about a year for prices to move up more consistently. Bitcoin did not reach its peak in 2017 until early 2021.

From there it shot up and increased in value for a short period. But based on a model where crypto winters and boom cycles occur roughly every four years, it could be 2025 or early 2026 before we see prices return to the November 2021 peaks.

Assuming the four-year pattern holds, this could be an ideal time to buy more cryptocurrencies. But it is an extremely risky decision that is ideal only for long-term investors, as cryptocurrencies are risky and there is no guarantee that they will ever recover.

Will crypto ever recover?

Crypto is likely to correct from its current downward trajectory, but there is also a good chance that it could fall to zero. China’s move to restrict crypto could be the first of many, for example, as governments and environmentalists battle crypto’s massive power use.

Tiny El Salvador made bitcoin a national official currency, but other nations are considering serious regulations and restrictions. Government officials say they need additional laws on digital assets to protect consumers and the environment.

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