How long will crypto winter last and what does it mean for payments?

Cryptocurrencies experienced a brutal loss this year, diminishing by $2 trillion in value since the height of a massive rally in 2021. The value of the top 100 cryptocurrencies on September 5, 2022, is lower than it was nine months earlier. 

The last similar period of major losses happened between 2017 and 2018, which was largely caused by the abundance of suspicious ICOs and the subcurrent burst of a hype bubble around cryptocurrencies. The current crash began earlier this year as a result of many economic factors, including rampant inflation that has caused the U.S. Federal Reserve and other central banks to hike interest rates. 

Screenshot from CoinMarketCap

Despite the fact that bitcoin’s value has decreased by more than 60% from its all-time highs as of August 2022, interest in buying digital currency hasn’t diminished. According to PYMNTS’ August “Paying with Cryptocurrency” survey, over 50% of consumers are currently interested in buying crypto. However, these market conditions may have an impact on how payments are processed, so individual investors should be aware of the meaning behind the term “crypto winter,” how to survive it, and the most sustainable methods of accepting and sending payments.

What is a crypto winter?

Unlike terms such as “market correction” or “bear market,” “crypto winter” doesn’t have a precise definition. Usually, it is used to describe a period of time when the prices of popular cryptocurrencies go down and stay that way for a while. Similarly to the analogous season of the year, crypto winter is when there isn’t much going on and the market sentiment is mostly pessimistic/bearish. 

However, the big difference between a regular bear market and what investors call “crypto winter” is that the prices don’t just go down, they start trading sideways due to a significant loss in interest from investors. 

Screenshot from CoinMarketCap

The current crash hits differently because there are a lot more people involved in the cryptocurrency market due to the rising popularity of crypto payments. So, there are a lot more people affected by the crypto winter than in any of the years before. Another source of frustration is that, unlike stocks or other traditional assets, cryptocurrencies are largely expected to be less vulnerable to the effects of high inflation and rising interest rates.

It’s safe to say that all financial markets are currently affected by the economic conditions because consumers and businesses are the ones suffering losses. Therefore, the buying and investing power of their funds diminishes. A lot of new investors might have unrealistic expectations that crypto will only go up. 

Others will find the rush of adrenaline that volatile crypto markets provide. Dr. Robert Johnson, a professor of finance at Creighton University’s Heider College of Business, points to the meteoric rise and fall in value of some cryptocurrencies like bitcoin: 

“For some, the high volatility makes them more attractive, and there’s an opportunity to make a huge return in a short period of time,” he says. Therefore, it may be best for cryptocurrency investors to adopt a realistic outlook on crypto winters, prepare for them, and take steps to be able to weather their ups and downs.

When predicting the future of the cryptocurrency market, most experts agree that the strongest popular cryptos with proper application cases behind the network will prevail.  According to CNBC, a cryptocurrency winter may last anywhere from several months to four years before the correction happens. According to a Grayscale white paper released in August of this year, Bitcoin, a proxy for the crypto market, could “see another five to six months of downward or sideways price movement.”

What does crypto winter mean for payments?

Since the current crypto winter affects both individuals and companies, some crypto entities are experiencing the harsh consequences. Job losses have already been announced by prominent cryptocurrency exchanges like Coinbase and Gemini. While Gemini’s executives have issued a “tough times ahead” warning, Coinbase will be laying off 18% of its workforce.

James Butterfill, head of research at CoinShares, said: “We feel that this pain will spill over to the crowded exchange industry,” said Butterfill. “Given that it is such a crowded market, and that exchanges rely to some extent on economies of scale, the current environment is likely to highlight further casualties.”

However, for individual investors who are not actively involved in the crypto industry’s business side, it’s most important to consider how crypto winter can affect their own transactions and holdings. With some miners seeing diminishing profits, transactions may have longer wait times or higher transaction fees. This is why it’s important to use the type of cryptocurrency that has the least volatile gas fees, such as stablecoins. 

5 Tips for surviving crypto winter 

There are more tips that every individual crypto trader and investor can take to protect themselves amid the strong pessimistic market sentiments. 

• Diversify your portfolio
  The first rule of investing, no matter what market conditions are present, is to always diversify your holdings. Because cryptocurrencies are considered highly volatile, it’s important to recognize and weigh the risk. If appropriate, expand your portfolio of less risky assets, such as bonds. Also, have separate savings where you can quickly turn it into physical cash and never invest what you are not ready to lose.

• Develop an appropriate strategy
  Now might not be the time to take big risks on new tokens. Even though some projects are coming out that have been in development for years prior to the current crypto winter and might have great potential, extreme caution should be taken when approaching new and unknown assets. It’s also important to remember that sometimes holding on to your investments for an extended period of time could give them a chance to recover. Overall, this is the best time to analyze and possibly improve your current strategy as well as make sure you have a plan whether the crypto winter ends or continues for a while.
• Stay informed
  Keeping up with latest news both in crypto and traditional markets is important to stay in the loop on new developments in the industry. For example, the most recent news from Powell’s Jackson Hole speech signaled higher-for-longer interest rates to fight inflation, which left the crypto market down by only 6%, which is a less significant drop than many would have expected. This means that BTC is demonstrating resilience after this somewhat negative news. 

Screenshot from CoinMarketCap

• Do Your Own Research
  While articles like this one strive to educate cryptocurrency investors and provide valuable information, it’s always advised to read more than one article on every topic to keep your research well-rounded. Think critically of everything you see online, especially if it consists of promises that are too good to be true. 

• Hold your own keys
  Last but not least, an important step is to make sure that you keep your funds in a secure place. Whether it’s a hardware wallet or a decentralized online solution, make sure that you own your keys. With many exchanges suffering from the consequences of crypto winter, bankruptcy and payment delays have become a more frequent occurrence. Make sure the exchanges and wallets you use are trustworthy and reputable.

Should I accept crypto payments?

The simple answer is yes, of course. Regardless of the current state of the market, it is crucial to start or continue supporting crypto payments to support their utility and use cases. To think of it from some Bitcoin holders’ perspective, fixing losses and selling part of their holdings might be a good idea. A lot of projects and individual entrepreneurs prosper in the bear market because it’s not about the projected values of the coins but only their current worth. For crypto holders who do not have access to conventional financial products, it may also be a more practical way to make purchases of goods and services. 

Following the aforementioned advice, it’s important to choose a trustworthy service for crypto payments. One of the leaders in instant crypto payments right now is NOWPayments. Its advantages are instant payments, fair and transparent trading rates and transaction fees, as well as the non-custodial nature of the service. 

Conclusion

Investors that have been watching the crypto market for the past decade know that similar crypto winters happen about every four years. Participants in the market can feel confident enough in that consistency to see them through the turbulence. 

The shock of the initial price drops might have worn off, but winter has not yet thawed into spring. Meanwhile, news about some entities freezing user accounts is a good reminder to do your due diligence when selecting services, rather than a reason to write off the crypto sector altogether.