Will the Crypto Winter Thaw in the Second Half of 2022?

Key Insights:

• The collapse of Terra, 3AC, and insolvency crisis across crypto institutions has created severe bear conditions in Q2.
• Experts predict prolonged crypto winter in the second half of 2022.
• Bitcoin saw a quarter-to-quarter loss of over 57%, and ether lost over 67%.

The cryptocurrency market has had a roller coaster ride this year, with signs of liquidity crunch and even insolvency. After raising phenomenally in 2021, bitcoin (BTC), ether (ETH), and other significant cryptos started to plummet.

The $2 trillion crypto market crash wiped out investor gains and obliterated once staple cryptocurrencies. For instance, Terra’s (LUNA) collapse is one of the primary drivers of the crypto market dive. The algorithmic stablecoin lost all of its value following TerraUSD (UST) collapse in May.

Another major driver is the centralized-finance lender Celsius, which offered users yields of more than 18% for depositing their cryptos. The firm paused withdrawals for customers in June.

Market participants are calling the current turmoil a “crypto winter.” To start with, crypto winter is the term used when there is a rapid and prolonged decrease in crypto values. Prices can remain depressed for many months, falling as much as 50-90%. It has been a difficult phase for crypto investors, who are anxious to know how long this uncomfortable period can last and how to survive the frosty crypto markets.

“If Winter Comes, Can Spring Be Far Behind?”

The current phase could be challenging for holders; nonetheless, this is not the first time the market is witnessing such high volatility. Between 2018 and 2020, bitcoin lost nearly half its market value but came back stronger in November 2021, reaching its all-time high.

The latest monetary policy decision from the Fed on Wednesday has had little impact on the bitcoin price. As the Federal Reserve continues to curb stubborn inflation, the central bank raised interest rates by 0.75%, the fourth consecutive increase this year alone.

Soon after the announcement, experts largely predicted that investors should expect new volatility this week. At the start, sentiment in the crypto market appeared slightly bearish, though prices showed signs of going uphill.

Bitcoin was trading above $23,000, and ethereum was trading above $1,700 as of Thursday, both up by over 10%.

Edward Moya, a senior market analyst at Oanda, told the Time publication,

“The FOMC decision provided optimism that the end of tightening is in sight, and that triggered a nice rally for risky assets that helped elevate cryptos.”

Q3 & Q4, 2022: A Ray of Hope for Crypto Investors?

According to Moya, crypto investors are keeping a close eye on the price of bitcoin, ethereum, and other cryptos to see if there is any “possible retest of the June lows.”

However, despite the positive momentum last week, it is no where close to the highs it reached last year. Looking into the crypto’s history of volatility, it is not clear when the market turbulence will settle.

Few market experts predict that there could be more pain in the second half of this year as crypto companies struggle to pay their debts and process customer withdrawals.

For instance, Tom Loverro, a former Coinbase Board member, has shared his predictions on crypto winter in his series of Twitter threads. According to him, the present phase could fall even lower in 2022.

In 2022, crypto will go even lower. 2023 will be mostly flat to down, until indifference 🥱 sets in, signaling a long-awaited spring thaw (explained below). Crypto macro will improve in the 2nd half of 2023. My reasoning: /2

— Tom Loverro (@tomloverro) June 28, 2022

He noted that the pandemic largely drove the 2020 bear market, and the current crypto winter isn’t similar to the 2020 fall. He further said,

“So, these investors will suffer until rates stabilize.”

Going from crypto peak to floor has historically taken ~12 months. I expect that pattern to play out again, give or take. #btc’s peak was Nov 2021. /4

— Tom Loverro (@tomloverro) June 28, 2022

Loverro advises investors to have enough cash to get through the next 30–36 months. He said, “crypto will come back bigger than ever.”

In an interview with FX Empire, Dora Yue, founder of crypto firm OKEx, said that after this “aggressive round of forced selling and deleveraging,” there are many reasons for investors to remain optimistic, such as:

• The market has deleveraged, and stablecoin debt utilization has returned to a relatively reasonable level.
• Asset prices have started to rebound from their lows, especially for Defi.
• Valuations in the primary market are slowly returning to sanity.
• Business models and startups will mature more as they go through the market cycle again.

As Q3 of 2022 begins, it wouldn’t be pleasant for bitcoin, given the baby steps that cryptos take to recover. As reported by FXEmpire, bitcoin saw a quarter-to-quarter loss of over 57%, while ether dropped by more than 67% over the same time.

Per Nomura, a Japanese financial services behemoth, major economies could see a recession “‘in the next 12 months amid tightening government policies and higher costs.” The words sent a chill down investors’ spines, expecting hard times in the near future.