Fintech

The bitcoin crash has people talking about another crypto winter

Volatile crypto prices have scared consumers and companies away from the sector before — sometimes for extended periods.

Crypto winter

“Crypto winter” is a prolonged period of flat trading following a price crash.

Illustration: Christopher T. Fong/Protocol

The sharp drop in cryptocurrency prices has spurred fears that the notoriously volatile industry is about to go through another prolonged slump.

The market cycle has become such a predictable pattern — a steep decline in coin prices followed by a prolonged period of flat trading — that it even has a catchy name: crypto winter.

“With this market drawdown, we are definitely in this similar territory of downturns we have seen in the past,” Chris McCann, a partner with Race Capital, told Protocol.

The most recent crypto winter happened around 2018 when bitcoin rallied to about $20,000 before a roughly two-year slide that saw it fall to under $5,000.

But crypto slumps have always been followed by sharp rallies, which drew more players and corporate investments to the space.

A good example is Robinhood, which introduced crypto in 2018. That bet seemed to pay off when crypto trading revenue juiced its earnings just in time for its IPO last year. But lately, falling crypto volume has been a drag on the stock.

At times, the crypto craze has led to quirky, even disastrous business maneuvers. The bitcoin rally in 2017 prompted the Long Island Iced Tea Corp. to rebrand itself as Long Blockchain. It ended up getting delisted from the Nasdaq last year.

The current slump began in early November when the total market value of all cryptocurrencies, having reached nearly $3 trillion, began sliding. They settled at around $1.6 trillion this week. The price of bitcoin has tumbled to around $36,000, after topping more than $67,000 late last year.

What's different now?

Is the current slump a buy-on-the-dip opportunity like the pandemic price crash in March 2020 or the May 2021 crash that also wiped out $1 trillion in value? Or is it a prelude to a prolonged period of flat trading like the markets saw in 2018 and 2019? It’s hard to tell with crypto, which has proven to be a particularly unpredictable market.

“If I could foresee the future I'd be in Las Vegas,” said Rob Siegel, a management lecturer at the Stanford Graduate School of Business.

But there are key changes that could be causing the heightened volatility, he said.

The rise in value of crypto assets was driven mainly by speculation and low interest rates. “In a world of largely 0% interest rates, capital was chasing returns,” he said. “Ergo, it flowed to riskier assets like crypto to get those returns.”

With the Fed signaling a new round of interest rate hikes, “capital is flowing back to less risky assets that will yield higher returns than they did previously,” Siegel said.

Meanwhile, he argued, questions remain about the long-term value of crypto assets. “The rise and fall of the crypto value in the near term tells us nothing of the long-term rise or fall of the asset class,” he said.

Bank of America urged investors to embrace a long view on crypto. In a note titled “Is another crypto winter here?”, bank analysts wrote that “direct exposure in crypto coins or tokens” should be “attractive only for highly risk-tolerant and speculative investors.”

These risk-tolerant investors now include big institutions, including major corporations. Chris Kline, co-founder and COO of Bitcoin IRA, noted that there are now more institutions dabbling in crypto, from major investment firms and hedge funds to companies like Tesla, Block, MicroStrategy and Coinbase that have billions of dollars in bitcoin on their balance sheets.

“This sell-off is not the same as others,” he told Protocol. “Unlike past rallies that were primarily retail, the inclusion of larger institutions can affect price moves differently. ... This is uncharted territory for crypto as we enter a new phase in its lifecycle with attraction from big players, hedge funds and even governments signaling that they are open to this asset class.”

HODLing for warmth

Still, for the crypto faithful, the sell-off is an accepted part of an industry where investors are encouraged to “hold on for dear life” and embrace the long view.

“If you're going to invest in bitcoin, a short-time horizon is four years, a mid-time horizon is 10 years. The right time horizon is forever,” MicroStrategy CEO Michael Saylor told Bloomberg.

McCann argued that downturns are “usually the best time to build and invest because only the true believers can stick through this kind of volatility and focus on building.”

“These times are what separates the wheat from the chaff,” he said.

Policy

How 'Zuck Bucks' saved the 2020 election — and fueled the Big Lie

The true story of how Mark Zuckerberg and Priscilla Chan’s $419 million donation became the 2020 election’s most enduring conspiracy theory.

Mark Zuckerberg is smack in the center of one of the 2020 election’s multitudinous conspiracies.

Illustration: Mike McQuade; Photos: Getty Images

If Mark Zuckerberg could have imagined the worst possible outcome of his decision to insert himself into the 2020 election, it might have looked something like the scene that unfolded inside Mar-a-Lago on a steamy evening in early April.

There in a gilded ballroom-turned-theater, MAGA world icons including Kellyanne Conway, Corey Lewandowski, Hope Hicks and former president Donald Trump himself were gathered for the premiere of “Rigged: The Zuckerberg Funded Plot to Defeat Donald Trump.”

Keep Reading Show less
Issie Lapowsky

Issie Lapowsky ( @issielapowsky) is Protocol's chief correspondent, covering the intersection of technology, politics, and national affairs. She also oversees Protocol's fellowship program. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University's Center for Publishing on how tech giants have affected publishing.

Sponsored Content

Why the digital transformation of industries is creating a more sustainable future

Qualcomm’s chief sustainability officer Angela Baker on how companies can view going “digital” as a way not only toward growth, as laid out in a recent report, but also toward establishing and meeting environmental, social and governance goals.

Three letters dominate business practice at present: ESG, or environmental, social and governance goals. The number of mentions of the environment in financial earnings has doubled in the last five years, according to GlobalData: 600,000 companies mentioned the term in their annual or quarterly results last year.

But meeting those ESG goals can be a challenge — one that businesses can’t and shouldn’t take lightly. Ahead of an exclusive fireside chat at Davos, Angela Baker, chief sustainability officer at Qualcomm, sat down with Protocol to speak about how best to achieve those targets and how Qualcomm thinks about its own sustainability strategy, net zero commitment, other ESG targets and more.

Keep Reading Show less
Chris Stokel-Walker

Chris Stokel-Walker is a freelance technology and culture journalist and author of "YouTubers: How YouTube Shook Up TV and Created a New Generation of Stars." His work has been published in The New York Times, The Guardian and Wired.

Fintech

From frenzy to fear: Trading apps grapple with anxious investors

After riding the stock-trading wave last year, trading apps like Robinhood have disenchanted customers and jittery investors.

Retail stock trading is still an attractive business, as shown by the news that crypto exchange FTX is dipping its toes in the market by letting some U.S. customers trade stocks.

Photo: Lam Yik/Bloomberg via Getty Images

For a brief moment, last year’s GameStop craze made buying and selling stocks cool, even exciting, for a new generation of young investors. Now, that frenzy has turned to fear.

Robinhood CEO Vlad Tenev pointed to “a challenging macro environment” marked by rising prices and interest rates and a slumping market in a call with analysts explaining his company’s lackluster results. The downturn, he said, was something “most of our customers have never experienced in their lifetimes.”

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Google Voice at (925) 307-9342.

Enterprise

Broadcom is reportedly in talks to acquire VMware

It hasn't been long since it left the ownership of Dell Technologies.

Photo: Yichuan Cao/NurPhoto via Getty Images

Broadcom is said to be in discussions with VMware to buy the cloud computing company for as much as $50 billion.

Keep Reading Show less
Jamie Condliffe

Jamie Condliffe ( @jme_c) is the executive editor at Protocol, based in London. Prior to joining Protocol in 2019, he worked on the business desk at The New York Times, where he edited the DealBook newsletter and wrote Bits, the weekly tech newsletter. He has previously worked at MIT Technology Review, Gizmodo, and New Scientist, and has held lectureships at the University of Oxford and Imperial College London. He also holds a doctorate in engineering from the University of Oxford.

Podcasts

Should startups be scared?

Stock market turmoil is making VCs skittish. Could now be the best time to start a company?

Dark times could be ahead for startups.

Photo by Startaê Team on Unsplash

This week, we break down why Elon Musk is tweeting about the S&P 500's ESG rankings — and why he might be right to be mad. Then we discuss how tech companies are failing to prevent mass shootings, and why the new Texas social media law might make it more difficult for platforms to be proactive.

Then Protocol's Biz Carson, author of the weekly VC newsletter Pipeline, joins us to explain the state of venture capital amidst plunging stocks and declining revenues. Should founders start panicking? The answer might surprise you.

Keep Reading Show less
Caitlin McGarry

Caitlin McGarry is the news editor at Protocol.

Latest Stories
Bulletins