Bearing Crypto Winters
Historically the value of cryptocurrencies has moved independently of the larger equities markets and was much more sensitive to Bitcoin Halving events and other blockchain-related news, and because of this traders within the crypto markets developed the term “crypto winter” to describe what would be considered a bear market, or a market downturn, in traditional markets. Its name is likely attributable to the crypto communities’ meme-driven culture and the popularity of HBO’s Game of Thrones with their “Winter is Coming” meme.
How Long Will Crypto Winter Last?
The last crypto winter lasted for 2 years, it may have lasted even longer if COVID-19 hadn’t sparked DeFi summer in July of 2020. Prior crypto winter cycles only lasted for between 111-547 days, with the average being skewing longer during the last three downturns. The catalyst for a return to the bull market is novel utility, and with more people developing within the ecosystem than ever before, we’d expect it to retain the 15-18 month recovery timeline, and this time around with consumer products breaking through to larger mainstream recognition, though the larger macro-economic environment is a major factor in its recovery as well.
Recovering from crypto winter will continue to be far more tied to the larger environment, specifically the performance and sentiment around the tech sector, which is typically seen as growth stocks and will now need to tamp down growth expenses and shape up its core operations to become an attractive investment to buyers with a risk-averse mindset. This same mindset will affect investing in cryptos and how capital is allocated throughout this crypto winter. Fortunately for those with software development skill sets, writing code is a function of investing time to a goal and can survive in a low funding environment. Teams that are developing software products that address real problems will attract the capital necessary to grow when the time comes, and those that can develop financial traction before raising funds will be in the strongest positions to receive investment.
What will mark the return of a crypto bull market?
Ultimately the money that often gets spent in wasteful ways during bull market cycles has disappeared, and teams must be far more strategic about deploying capital and focused on building sustainable business models around their solutions if they are going to win out. If we look at historical trends of how long it takes software companies to acquire their first million users or customers, a clear benchmark of success and some modicum of product market fit, we should begin to see the light at the end of the crypto bear market in 18-24 months as projects work towards those noteworthy goals. 1-2 breakout successes from a product perspective could be enough to ignite a longer-term bull market rally.
TradFi + DeFi = New Future
As to how the crypto market will impact the traditional markets moving forward, it’s expected that more and more companies will have exposure to cryptocurrencies on their balance sheets, particularly data-driven organisations whose data silos would benefit from the tokenisation of these assets and the new revenue streams available to them monetising those assets. Forward-looking tech companies will look past the threat of disintermediation by opening up access to their proprietary data models and allowing users to leverage their personal data on competing platforms in order to establish their brand as a leader in the emerging tech space or risk getting left behind. Again, because most software systems are derivations of one another with a fairly common and understood use case they function more as a commodity or utility than a traditional product or service and can be delivered for a fairly cheap cost, meaning that many of these systems will compete on brand of which legacy tech companies would have the first mover advantage with.
There are a lot of externalities that could change the landscape and trajectory of the economic environment for crypto and other financial markets, and we likely have not yet seen the bottom of this crypto winter, so bundle up.
About the author: Connor Borrego is a Midwest Based Technology Entrepreneur. He received his Master’s of Science in Business Intelligence Systems from Syracuse University, and he received his Bachelor of the Art’s in Entrepreneurial Communications from the University of Michigan. He has worked for the past decade in the advertising technology industry, most notably as a Startup Growth Consultant for Google. Currently, Connor is commercialising a blockchain-powered software to help musicians increase their earnings as an artist and grow their online audience.