What Is Crypto Winter: Definition, Meaning, & More

A crypto winter is a term used by investors to describe a lengthy crypto bear market with poor investor sentiment and stagnant or falling prices. Anyone who has invested in the crypto market for longer than a few years has likely been affected by a crypto winter. Many traders have lost a massive portion of their funds, but others have used it as an opportunity to scoop up popular coins at bargain prices.

Crypto winters can seem like a godsend to traders with enough cash to buy cheap coins, but no one knows for sure whether the market will recover from the latest bear market. Below, we will explain the definition of crypto winter in-depth, explore how it affects investors, and detail the main causes of these slumps.

What Is a Crypto Winter?

Crypto winter is a term used to describe a long period of poor market conditions in the cryptocurrency market. It is characterized by a prolonged bear market where prices of digital assets plummet (or stagnate), and investors lose confidence in the industry’s future.

The term was coined in 2018 when the crypto markets experienced their biggest crash (at the time). The prices of Bitcoin (BTC), Ethereum (ETH), and other major cryptocurrencies fell by over 80% from their all-time highs.

The crash caused immense financial losses for investors and businesses invested in the industry, and many projects had to shut down and lay off employees. The market capitalization of the entire industry fell from over $800 billion to less than $200 billion in just a few months.

No one knows for sure what caused the crash, but experts suggest that it was likely a combination of factors, including the ICO bubble popping, regulatory uncertainty, and a sweeping ban on crypto ads by major tech firms.

How Do Crypto Winters and Market Cycles Work?

Many experts believe that the crypto winter is a regular portion of a larger crypto market cycle, which cycles between boom and bust periods. It’s important to note that this idea is still just a theory. No one knows for sure how long the market will follow this specific cycle.

Within this market cycle theory, there are two main approaches that try to explain and predict the crypto market. The first is the theory of the four-year cycle, also known as the “halving” or “reduction by a half” cycle. Proponents believe that the main factor is the Bitcoin halving, where the issuance of BTC is cut in half every four years.

According to this theory, the massive reduction in the supply of new Bitcoins entering circulation, assuming stable or growing demand, causes an increase in the price of Bitcoin. This price increase pattern post-halving has been observed after every halving event so far, in 2012, 2016, 2020, and 2024. The main problem with this theory is that it assumes steady or rising demand, which is never guaranteed.

After a long period of massive growth, the crypto market often pulls back for up to a year or more, caused by various factors such as high interest rates, a stock market correction, or a major token or exchange failure.

The second popular theory that attempts to describe crypto market cycles is the Elliot Wave Theory, which is based on psychological and behavioral aspects of investors. This theory is significantly more complex, suggesting that markets move in waves, each with a different psychological effect on participants.

According to proponents of this theory, studying these waves can help analysts predict turning points in bullish and bearish cycles. However, its complexity and subjectivity can make it difficult to use and understand.

In the end, it’s possible that neither of these theories is true or even that both are true to a certain extent. We simply don’t have enough data and understanding of the crypto market and investor behavior to fully determine how the crypto market functions.

Why Are Crypto Winters Important in Crypto?

Crypto winters and downturns in general can be just as important as massive bull runs. That doesn’t mean that they aren’t often painful, but it can be just as much of an opportunity as a hazard with enough cash and luck.

Assuming that our theorized version of the Bitcoin market cycle continues, crypto winters could present strong opportunities to pick up coins at major discounts. However, it’s important to remember that this is a big assumption to make. There is absolutely no guarantee that the crypto market will recover after any given crypto winter. In fact, many top altcoins fail to reach new highs after a prolonged bear market, and some fall steadily towards zero.

What Causes a Crypto Winter?

There are a variety of reasons that cause a crypto winter, such as:

• Speculative bubbles: Cryptocurrency prices often artificially inflate due to speculation and euphoria, reaching unsustainably high levels disconnected from real fundamentals. Eventually, these bubbles burst, leading to a sharp correction. For example, after Bitcoin’s price nearly touched $20,000 in late 2017, it sharply dropped nearly 80% in 2018, initiating a prolonged crypto winter.
• Macroeconomic factors: The crypto market is heavily influenced by macroeconomic conditions and asset prices. Rising interest rates, economic uncertainty, and falling risk-on asset prices often lead to crypto corrections. In these times, investors often sell their risky assets and turn to safer investments like the dollar and U.S. treasuries.
• Regulatory scrutiny: As cryptocurrencies gain greater adoption, financial regulators worldwide begin to establish tougher rules to control this market. This can cool speculative interest and trigger capital outflows. A concrete case was the ban on cryptocurrency advertising imposed by Meta Platforms Inc (NASDAQ: META) and Google LLC after the 2017 bubble.
• Exchange & token failures: The explosive failure of large coins or crypto exchanges often causes price crashes because it tarnishes the reputation of the industry. Examples include the collapse of FTX, Mt. Gox, and Terra Luna.
• Technical issues: Major hacks or devastating bugs can also help spark crypto winters and harm the industry’s reputation. For example, Ethereum’s ‘The DAO’ was hacked in 2014, losing investors tens of millions of dollars before it was eventually reversed.
• Investor cycle shift: Just like how investors shift capital from high-risk assets to low-risk assets during times of uncertainty, they also often rotate capital to even riskier assets in times of euphoria. The recent eruption in AI company valuations has sparked significant outflows from cryptos into AI investments like NVDIA.

Crypto Winter vs Bear Market Explained

The idea of the crypto winter fits into a larger discussion of crypto market cycles and price movement. The main confusion that many investors have with it is distinguishing ‘crypto winter’ from ‘bear market.’ Although the terms are often used interchangeably, they typically refer to two different scenarios.

A bear market is usually defined specifically as a drop of more than 20% from previous highs. These declines can occur during relatively short periods, potentially for only a few months. They can also be temporary corrections within longer-term bullish trends in the crypto market. In multiple previous cycles, including the current one, Bitcoin has fallen 20% or more before recovering and reaching new highs within a few months.

On the other hand, crypto winter is almost always used to describe sustained periods of falling or stagnant prices. Many crypto winters cause most tokens, except for some of the largest players, to lose over 90% of their value.

During a crypto winter, prices typically remain depressed for an extended period, stretching for eight to ten months or even longer. This causes a drastic shift in market sentiment, leading many investors to refer to cryptocurrencies as speculative bubbles.

The last significant crypto winter occurred after Bitcoin’s local high of over $67,500 in November 2021. Its value fell steadily over the entire year of 2022, dropping over 75%, before the next bullish cycle began in 2023.

What Was the Crypto Winter of 2022?

The crypto winter of 2022 began with a massive sell-off that wiped out billions of dollars in value, less than a year after the total market capitalization of the crypto market exceeded $3 trillion.

2021 marked the climax of an exceptional bullish cycle that spanned the entire year until November, when market sentiment began to shift. The main initial cause of the crash seems to have been the total collapse of the massive crypto exchange FTX. In fact, Bitcoin hit its local high the same day that FTX halted withdrawals due to a lack of liquidity, on the eighth of November.

After the FTX disaster, some investors thought that it would be a little more than a quick correction as Bitcoin ‘only’ fell to roughly $40,000 and mostly traded sideways for a few months. That was until another calamity, the Terra Luna crash, struck the market. The mechanism supporting the project’s main stablecoin, UST, fell apart, pulling millions of traders and some investment funds down with it.

By June 2022, Bitcoin was trading below $16,000, marking a drop of over 75% from its historical peak. From there, its price was stagnant for months before it started to rise again in late 2023. Most other coins were hit even harder, with many falling over 90% from their recent highs.

Naturally, the major exchange and token failures seem to have been the main direct causes of this crypto winter. However, other factors like rising interest rates and capital rotations from speculative assets into more stable investments like bonds certainly contributed.

What Is the Future of Crypto Winters?

No one can perfectly predict the future of the crypto market or even fully understand the nature of crypto market cycles. There are simply far too many variables. It’s possible that Bitcoin and the crypto market could continue to act in relatively regular cycles for years and years to come. It’s also possible that our concept of the market cycle completely falls apart as variables shift.

Nevertheless, it’s likely that the concept of crypto winters won’t go away anytime soon. Boom and bust cycles have existed for far longer than Bitcoin has been around, and they are still seen in stock and asset markets around the world. Either way, it’s important to understand the market as best as we can so that we can make the most informed investing decisions possible.

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Ibrahim Ajibade

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I’m a research analyst with experience supporting Web3 startups and financial organizations through data-driven insights and strategic analysis. My goal is to help organizations make smarter decisions by bridging the gap between traditional finance and blockchain innovation.

With a background in Economics, I bring a solid understanding of market dynamics, financial systems, and the broader economic forces shaping the crypto industry. I’m currently pursuing a Master’s degree in Blockchain and Distributed Ledger Technologies at the University of Malta, where I’m expanding my expertise in decentralized systems, smart contracts, and real-world blockchain applications.

I’m especially interested in project evaluation, tokenomics, and ecosystem growth strategies, as these are areas where innovation can drive lasting impact. By combining my academic foundation with hands-on experience, I aim to provide meaningful insights that add value to both the financial and blockchain sectors.