A disastrous year for the sector has resulted in a sharp decline in cryptocurrency trading volumes across all platforms and markets.
The decline in trading volumes has impacted several well-known platforms, including meaningful cryptocurrency exchanges like Binance, CoinBase, and FTX.
It is not surprising that the lack of enthusiasm among traders has been reflected in the cryptocurrency markets. In contrast to the previous two years, when ordinary investors rushed into cryptocurrencies and other risky assets amid a flurry of free time and stimulus money, this is a marked change.
According to Chris Gaffney, president of world markets at TIAA Bank, “moms and pops are probably not as engaged when you see anything sell off that much.” They detest purchasing items that are falling or that have already started to fall and stabilize. They want to see the first steps being taken.
Decline In Trading Volumes
Since May, trade volumes in spot and derivatives on all exchanges have decreased by more than 15%, to almost $4.2 trillion, according to statistics gathered by CryptoCompare. Since January of last year, this level has been at its lowest.
Spot volumes decreased by over 28% to $1.41 trillion in June alone. The trade volume fell 7% during the month, reaching its lowest level since July 2021. Since derivatives account for more than half of the market in the cryptocurrency market, the latter number is particularly important.
Additionally, according to data from CryptoCompare, the volume of Bitcoin futures contracts traded at the Chicago Mercantile Exchange (CME) fell to its lowest level since July 2021, with a total of $29 billion. Ethereum futures contracts also experienced a decline of almost 20%, which CryptoCompare claimed suggested a “collapse in speculative activity.”
As a result of investors’ diminished enthusiasm in a cyclical bad market, the volume has decreased, according to Katie Stockton, co-founder of Fairlead Strategies. We may anticipate volume to be below average until cryptocurrency prices break out of the current bear-market cycle, which could take months.
Understanding a Crypto Winter
A market for cryptocurrencies that is underperforming is referred to as being in “crypto winter.” Similar to a bear market on the stock market is this term. A “crypto winter” is characterized by negative attitudes and declining average asset values across different digital currencies. To be informed about this period better to check crypto charts live to avoid investing in crypto at that moment on the market.
Winters in the cryptocurrency market have a big effect on investor mindset, studies show. When examining the price history of cryptocurrencies, it can be simple to identify a crypto winter because the collapse may be followed by a double-digit percent decline in cryptocurrency values.
There have already been several instances of crypto winters. For instance, bitcoin values decreased and remained significantly below their prior heights from late 2017 to December 2020. However, a significant crypto bull market began in December 2020, and values shot up to record levels.
Although it’s not always the case, crypto winters may coincide with other economic downturns like a stock market bear market. A relatively new asset class that is independent of other markets is cryptocurrencies.
It can be challenging to decide whether to sell your cryptocurrency at a loss or stick to it in the hopes of a future rise in price. Cryptocurrencies are a dangerous investment that can one day lose all of its value. Even while it’s doubtful that all cryptocurrencies would fail, quite a few could eventually disappear.
Bitcoin’s value has decreased by more than 50 percent since its peak in November 2021. Numerous crypto and blockchain projects were adversely harmed by the global market price decreases. An important development was the loss of the Terra Luna algorithmic stablecoin’s peg to the US dollar, which wiped out users’ savings. At that time, two platforms, Celsius and Voyager, failed presumably costing depositors a sizable chunk of investments.
How To Recognise Crypto Winter?
Because cryptocurrencies are a more recent asset, the crypto winter is less well-defined than downturns in other markets. A crypto winter would occur if values dropped by 20% or more from recent highs, analogous to the bear market in the stock market.
Perhaps the most reliable gauge of bitcoin values is the S&P Cryptocurrency Broad Digital Market Index.
It is clear that crypto winter is underway because this indicator is currently almost 70% below its most recent peak. However, long-term investors are still up over the following three and five years.
How Is Crypto Winter Different From a Bear Market?
A bear market occurs when there is a value fall in stocks, typically as a result of other economic problems. A crypto winter may coincide with a bear market, although the two are not always associated.
Stock prices are determined by market forces, and investors set target prices using fundamental and technical research methods.
Bitcoin pricing models are still in their infancy. This can lead to a significant difference between equities and cryptocurrencies.
But as the cryptocurrency winter that began in 2021 demonstrates, it’s also feasible for a low stock market to happen concurrently with a poor crypto market.
Tips to “Survive” a Crypto Winter
Keep your investments within your risk tolerance. It’s still early for cryptocurrency. It’s extremely unstable and hazardous. A wise investor will never put in more money than he can afford to lose. Investing all your savings in crypto has never been a good idea yet.
Carefully analyze each cryptocurrency project. Each coin and token is associated with a different governing body or group of volunteers. Some turned out to be scammers. It is extremely important to carefully evaluate each cryptocurrency project before determining how much to invest while the market is chaotic.
Avoid adopting the herd mentality. While WallStreetBets and other online forums are pleasant places to learn about and discuss investments, you shouldn’t follow anyone’s suggestions.
Online forums are populated by enthusiasts who are not your real-life friends and will not be hurt if you lose money in the cryptocurrency markets. When investing, keep an eye on your specific goals and risk appetite.
Changing your portfolio is OK. According to the sunk cost principle in poker, it’s challenging to fold a hand even if you’ve previously placed a sizable stake. It would make sense to place even more bets in order to avoid losing what has already been staked, but doing so will only result in further losses if the money has already been lost.
If you don’t believe that a cryptocurrency’s value will increase, you don’t need to hold onto it. It’s acceptable to sell and modify your portfolio as often as you see fit.
Think about purchasing the dip. On the other hand, if you think the crypto bear market trend is temporary, you can invest at lower prices in the hope of adding value to your portfolio in case of markets recover.
Don’t let past losses too heavily sway your future financial choices. Your judgments should be based on what you perceive to be the currency’s or a project’s intrinsic value. It might be worthwhile to skip something if you’re unsure of its value. Keep investing in things you are familiar with.
If you are unsure, it may be helpful to speak with a financial expert who is obligated to operate in your best interests because they are a fiduciary.
When the market volatility will finally calm down is uncertain. However, analysts expect greater hardship as crypto firms struggle to make debt payments and manage customer withdrawals.
James Butterfill, head of research at CoinShares, believes that cryptocurrency exchanges and miners could be the next domino to fall.
Given the crowded nature of the market and the fact that exchanges rely to some measure on economies of scale, the current situation is likely to draw attention to additional fatalities.
Even established exchanges like Coinbase have been impacted by decreasing markets. Coinbase laid off 18% of its workers last month in an effort to save costs. The U.S. cryptocurrency exchange’s trading activity has recently declined along with the value of digital currencies.
According to Butterfill, blockchain transaction resolution for bitcoin miners who rely on specialized computer hardware may also be in danger.
He stated in a research report: “We have also detected apparent stress when miners have allegedly neglected to pay their electrical bills, presumably pointing to cash flow difficulties.
Perhaps because of this, some miners are selling their stock.
The labor that miners perform is expensive, both in terms of the equipment itself and the ongoing power supply needed to keep it operating round-the-clock.
The oldest stock markets in Europe date back hundreds of years, and the New York Stock Exchange was founded in 1792. Investors can now have faith that markets will withstand economic cycle ups and downs. However, there are many proponents and skeptics of cryptocurrencies.
The risks associated with any investment should be considered when determining how much to hold. You should realize how much you can actually afford to lose. The launch of Bitcoin more than a decade ago raised fresh concerns about the future of crypto funds and their capacity to bounce back after a protracted period of declining pricing. Despite having a good ten years under its belt, it is still relatively new when compared to conventional investments.