Body: When I think of winter, I think of beautiful drifts of white snow covering everything except my driveway and roads. When people in my parents’ generation heard “winter” they might have these thoughts, or, they might think of a “nuclear winter.” With a lot of hand-waving, a nuclear winter happens when there is so much dust, ash and crap(sorry for the technical jargon) in the air, that sunlight cannot effectively penetrate it. As a consequence, weather on the planet gets appreciably colder, in the short run. Certainly, it is not the same, but crypto winter seems to be similar. Said another way, after a life-changing event, when the rate of change begins to slog down, I think this is the crux of what is meant by crypto-winter.
How dark did things get?
Things were very bright and then went very dark. As of November 2022, FTX had collapsed, and in December, the leader, SBF, had been put on trial. Now, Bitcoin’s valuation seems to be coming back, leaving many to wonder if the crypto winter is over.
What is a crypto winter?
OK, let’s start at the portion people agree upon (mostly). A crypto winter is a period of depressed valuations and trading volumes, akin to a bear market on the stock market. (Some Market swings can be of various time periods, and so can a crypto winter. The first use of the term came in 2018. Over that past year, cryptocurrency experienced an epic 2,122% gain in price, and quickly decreased a nearly equal amount.
OK, smart guy, in that case, what are the signs of a crypto winter?
Fair enough, there are a few red flags
- Institutional investors begin to shy away from digital assets.
- As institutional investors go away, smaller investors get nervous and prices for digital assets decrease substantially.
- Given the falling prices, most activity within the cryptocurrency sphere stops.
So, how do you tell that a crypto winter is over?
No, there are no certain flowers that bloom only when the crypto winter ends. But, the valuation of Bitcoin is improving, and there has been some regulation allowing for ETFs. So, it would appear that winter is nearly over. Said one cryptocurrency expert, “It is true that the interest pick-up has been tentative in some quarters, and the regulatory landscape in the U.S. does not look warm and sunny, but for the crypto ecosystem as a whole, the ‘green shoots’ of spring have been evident for months.”
The Verdict
Winters can be hard to bear, dozens of snow storms force us to shovel, darkness seems to dominate the day,it can be disruptive. But, winter does serve some important functions. First, it reminds some people that they really should move. Second, it can feel so good hunkered at home with a fire in the fireplace, reading a book. Lessons can really be drawn from both of these observations. Plus, the conditions for a productive spring are made much better by the water left behind from the melted snow. So, get some cocoa, America. And I will quietly buy some cocoa futures.
REFERENCES
Is the Crypto Winter Over? | Kiplinger
Crypto Winter: What It is, Concerns, FAQs (investopedia.com)
What Is a Crypto Winter? | The Motley Fool
Crypto Winter Is Over | Nasdaq
Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice. Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.