NEW YORK (BLOOMBERG) - There are few things scarier for investors than a bear market - unless you're involved in crypto, in which case a winter is worse.
The chilling term refers to a sharp slump, followed by a drop-off in trading and months of market doldrums - a phenomenon that memorably befell the crypto market in 2018.
Bitcoin's price plunged by more than 80 per cent to as low as US$3,100 from the end of 2017 through December of the following year, a period characterised by the boom-and-bust of initial coin offerings and several big banks shelving their plans to start cryptocurrency trading desks. Bitcoin would not reach a new high until December 2020, according to data compiled by Bloomberg.
Memories of 2018 are sparking fears that a repeat is playing out now after the world's largest cryptocurrency plummeted 50 per cent from its most recent high of almost US$69,000 in November.
The crypto universe has shed more than US$1 trillion (S$1.35 trillion) in market value on growing conviction that the United States Federal Reserve is set to start ratcheting back the ultra-accommodative policy settings that fuelled a boom in risk assets. The pullback has hit all corners of the crypto ecosystem, from Bitcoin to memecoins and publicly listed crypto exchanges.
While the collapse has been rattling enough on its own, it has spawned an even bigger concern that the pain may persist for many months, according to UBS.
"There's this question of how do we characterise that and the nearest analogy is probably 2018, which is this idea of a crypto winter," said UBS head of foreign exchange research James Malcolm.
"It looks likely to be a fairly difficult and potentially prolonged period and therefore, the crypto winter analogy is quite good. Remember, the crypto winter in 2018 wasn't just over the Northern Hemisphere winter months. It basically extended for a whole year - so it was a crypto winter that lasted effectively a year."
Mentions of "crypto winter" and "crypto ice age" have flooded social media amid the latest drop. "Gm gm - make sure you stay warm, crypto winter is in full force," Twitter user @brycent_ posted on Monday, using the crypto shorthand for "good morning" to start his tweet. "Enjoy this #bitcoin winter," user @mir_btc tweeted over the weekend.
But unlike the winter of three years ago, investment in the crypto sphere remains robust - at least for now. This month alone, crypto exchange FTX announced the launch of a US$2 billion venture fund to target Web3 opportunities, while the Financial Times reported that venture capital firm Andreessen Horowitz is looking to raise US$4.5 billion for crypto funds. Of course, a prolonged slump could douse enthusiasm for the sector.
Outside of venture capital, companies are also looking to expand into corners of the crypto ecosystem. Filings with the US Patent and Trademark Office show that Walmart is preparing to create its own cryptocurrency and non-fungible tokens (NFTs). Meanwhile, GameStop reportedly is also planning to launch an NFT marketplace for gamers by the end of the year.
To Tacen's Budd White, that momentum is a sign that the crypto complex is in the midst of repricing, rather than a freeze.
"I don't believe we are entering a crypto winter because there is still increasing momentum on the build-side - we are just seeing more realistic pricing of what is currently built," said Mr White, chief product officer and co-founder at the software development company that builds open-source, blockchain-based software.