Categories: Business

Investors fear ‘crypto winter’ is coming as bitcoin falls 50% from record highs

As cryptocurrency investors reel from the sharp sell-off in bitcoin and other digital currencies, some fear the worst is yet to come.

Bitcoin, the world’s largest virtual currency, briefly plunged below $33,000 Monday to its lowest level since July. It’s since recovered back above the $36,000 mark, but is still down almost 50% from a record high of nearly $69,000 in November.

Meanwhile, the entire crypto market has shed more than $1 trillion in value since bitcoin’s all-time high, as top tokens such as ether and solana followed the No. 1 digital currency to trade sharply lower. Ether has more than halved in value since reaching its peak in November, while solana has suffered an even steeper decline, falling 65%.

That’s got some crypto investors talking about the possibility of a “crypto winter,” a phrase referring to historic bear markets in the young digital currency market’s history. The most recent such occurrence happened in late 2017 and early 2018, when bitcoin crashed as much as 80% from all-time highs.

David Marcus, the former head of crypto at Facebook-parent Meta, appeared to admit a crypto winter has already arrived. In a tweet Monday, he 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.”

Nadya Ivanova, chief operating officer at the BNP Paribas-affiliated tech research firm L’Atelier, said she’s not convinced a crypto winter has arrived yet — but the market is “now in a cooling off period.” That might not be so bad, she says.

“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 and other digital assets. A cooling off period might actually be an opportunity to start building the fundamentals of the market,” Ivanova told CNBC’s “Squawk Box Europe.”

Crypto’s rout has come in tandem with a slide in global stocks. Experts say that involvement from large institutional funds has meant digital assets are becoming more intertwined with traditional markets.

Correction?

Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, thinks the recent slump in crypto is more of a “correction” than a sustained downturn.

Bitcoin has typically seen “blow-off tops” before diving 80% or more, he said. This refers to a chart pattern which shows a steep increase in price and trading volume followed by a sharp fall in price.

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

Looking ahead, he says a key level to watch for bitcoin is $30,000. If it closes below that point in a week or more, “that would definitely indicate high likelihood of a bear market,” he said. A decline of around 80% from bitcoin’s recent peak would indicate a price of less than $15,000. Ayyar doesn’t think such a scenario is on the table.

Still, investors are worried about the prospect of further regulatory crackdowns on the crypto industry. Last week, Russia’s central bank proposed banning the use and mining of cryptocurrencies, mimicking a similar move from neighboring China. And the U.S. government is reportedly preparing to release a strategy to regulate crypto as early as next month.

MSN/CNBC

Trends Admin