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Lessons From the 2022 Crypto Winters and a Survival Guide for the Next Bear Market

While the crypto winter of 2022 was influenced to some extent by internal factors, it underscored the crypto market’s heightened vulnerability to macroeconomic conditions.

This observation isn’t surprising, considering that the bullish trend of 2020/21 largely rode on the back of historically low interest rates and extensive quantitative easing measures.

As economic dynamics shifted, marked by inflation upticks, interest rate hikes, and quantitative tightening, it became logical for investors to divest from crypto assets.

Furthermore, research during this period highlighted an increasing correlation between cryptocurrency and stock markets. As the latter experienced an extended downturn in 2022 amidst a global recession, it became evident that the crypto market was closely echoing the trends of traditional financial markets.

This correlation stemmed significantly from the growing involvement of institutional investors in the crypto sphere by 2022.

“Institutional investors started adopting long-term investment strategies, favoring the buy-and-hold approach, thereby cementing crypto’s status as a credible asset class for portfolio diversification,” notes Siddharth Lalwani, co-founder and CEO of Range Protocol.

However, internal factors also played a pivotal role, notably the abrupt and dramatic collapses of major players like Terra Luna and FTX.

These failures not only triggered a cascade of interconnected bankruptcies but also dealt a severe blow to confidence in the crypto market as a whole.

Building

Amidst regulatory scrutiny, exemplified by the SEC’s high-profile case against Ripple, cryptocurrency prices were overshadowed. However, amidst these challenges, it’s important to recognize the positive shifts that emerged by 2022.

“The period spanning from 2018 to 2022 marked a notable metamorphosis in the crypto sphere, notably highlighted by the rise and widespread adoption of Decentralized Finance (DeFi),” explains Brendan Sedo, a key contributor to Core DAO and former CEO of Joist.

“During this period, blockchain technology witnessed a significant expansion in its utility, culminating in the creation of fully self-contained financial ecosystems. DeFi blossomed into a dynamic network, offering a diverse range of services including lending and borrowing platforms, decentralized exchanges (DEXs), yield farming opportunities, liquidity mining, and automated market makers (AMMs), among others.”

What sets this transformation apart is its provision of robust infrastructure and practical utility, thereby fortifying cryptocurrency against future downturns.

There’s a compelling argument to be made that the proliferation of substantive platforms has accelerated the market’s transition into another bullish phase, surpassing the pace it might have otherwise taken.

This underscores a crucial lesson drawn from the crypto winters of 2018 and 2022, as well as any future downturns. It emphasizes the imperative of persevering in building during lean periods, irrespective of prevailing price movements.

As Siddharth Lalwani succinctly puts it, “Emphasizing fundamentals will emerge as a pivotal factor going forward. This encompasses well-defined use cases, resilient technology, and a proficient team. During crypto winters, projects lacking strong fundamentals often faltered as market sentiment shifted and speculative bubbles burst.”

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What we write about

I want to save money. Will cryptocurrency work?

Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

Every cryptocurrency has two main components: the units of digital exchange called “coins” and the network within which the exchange takes place. These units can be transferred between wallets and exchanged on exchanges. The networks in which these coins exist are called blockchains, which translates to “chains of blocks.”

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