Investors worried that ‘crypto winter’ is on the way

Following Bitcoin’s all-time high, the entire crypto market has gone ahead to lose more than $1 trillion in value, as top tokens such as Solana and ether have followed the number one digital currency.

With cryptocurrency investors reeling from a dramatic drop in price in Bitcoin along with other digital currencies, some believe that they haven’t seen it all, and the worst is yet to come.

The globe’s largest virtual currency, for a brief moment, Bitcoin fell below the $33,000 on Monday to some of its lowest levels since July. But it has since recovered above the $36,000 mark, though it’s still down by almost 50% from what was a record high of close to $69,000 in November.

On the other hand, the crypto market as a whole has lost more than $1 trillion in value since BTC’s all-time high, as some of the top tokens such as Solana and ether soon followed the number 1 digital currency in trading significantly lower.

Since reaching its peak in November, Ether has been affected, as it has more than halved in value. On the other hand, Solana seems even more heavily hit, falling by 65%.

With such, several crypto investors are predicting the possibility of a looming “crypto winter,” a phrase that refers to historic bear markets in the market history of the young digital currency. One of the latest occurrences took place in the late months of 2017 and early 2018 when BTC fell to as much as 80% from all-time highs.

The former head of crypto at Facebook-parent Meta, David Marcus all but confirmed a crypto winter is already here with us. In his Monday Tweet, Marcus said: “It’s during crypto winters that the best entrepreneurs build the better companies. This is the time again to focus on solving real problems vs. pumping tokens.”

The CEO at the BNP Paribas-affiliated tech research firm L’Atelier, Nadya Ivanova was convinced that the crypto winter has arrived, though the market is “now in a cooling-off period.” According to her, that’s not a bad thing as such.

“Over the last year — especially with all the hype in this market — a lot of developers seem to have been distracted by the easy gains from speculation in NFTs (non-fungible tokens) and other digital assets. A cooling-off period might be an opportunity to start building the fundamentals of the market,” Nadya Ivanova told CNBC’s “Squawk Box Europe.”

Crypto’s challenges seem to have come in tandem with a slide in global stocks, with experts arguing that the involvement of some of the biggest institutional funds has seen digital assets becoming entangled with traditional markets.

Since the start of the year, the S&P has fallen 8%, with the tech-heavy Nasdaq index down by over 12%. And the relationship between the performance of BTC and that of the S&P 500 seems to have been on the rise lately.

Traders are worried of the impending hikes in interest rates and hostile monetary tightening emanating from the Federal Reserve will drain liquidity from the market.

The U.S. central bank is thinking of implementing such moves in a bid aimed at ensuring that they respond to surging inflation.

Analysts believe that such could bring about an end to an era of ultra-cheap money, along with significantly high valuations, especially in high-growth sectors such as IT, where lower rates are beneficial since organizations frequently borrow money to invest in their operations.

“I think it’s related to the rout and withdrawal from risky assets overall,” Ivanova was quoted as saying regarding bitcoin’s recent decline.”

Digital currencies or stable coins that track the value of sovereign currencies such as the US dollar seem to have benefited following the decline in major digital coins. And according to recent data by CoinGecko, the market value of the US Coin, which happens to be the 2nd largest stablecoin, has increased by almost $5 billion since Sunday.

According to Vijar Ayyar, vice president of business development and international at crypto exchange Luno, the latest crypto dip is more of a “correction” as opposed to a persistent decline.

Ayyar continues by saying that Bitcoin frequently witnesses “blow-off tops” before plunging by 80% or more. This is a chart pattern depicting a rapid rise in price and trading volume, followed by a rapid drop in price.

“Corrections for BTC usually are in the 30-50 percent range, which is where we are currently, so still within normal correction territory,” said Ayyar.”

Ayyar sees $30,000 as a crucial threshold to watch for Bitcoin in the future. “That would absolutely signal a high risk of a bear market if it closes below that point in a week or more,” he said. A price of less than $15,000 would signify a drop of nearly 80% from bitcoin’s recent high. However, Ayyar does not believe such a scenario is possible.

Despite everything, investors are still are a concerned lot regarding the possibility of increased governmental restrictions on the business of crypto.

Just last week, Russia’s central bank suggested banning the use and mining of cryptocurrencies, a move that emulated what’s done in China. The U.S. government is also rumored to be in the process of revealing a crypto regulation policy as early as next month.