It has been a few years since the previous crypto winter. The last time cryptocurrencies took a hit this bad was back in 2018.
In late 2017, the entire crypto asset class notched an all-time market cap high of $780 billion. Around this same time, Bitcoin (BTC -0.45%) put in a new all-time-high price of just under $20,000.
As 2018 came around, prices plummeted. For almost two years, the cryptocurrency economy traded sideways. A crypto winter arrived.
Now we are in a similar situation. Just last November, the collective cryptocurrency market cap hit an all-time high of just shy of $3 trillion. In the same month, Bitcoin hit an all-time high of nearly $69,000. Since those highs, Bitcoin is down roughly 75%. The cryptocurrency asset class as a whole has shed more than 50% of its market cap. It is hard to not feel that this is eerily similar to the post-2017 all-time highs.
While no one knows the duration or the severity of this crypto winter, there are lessons that can help us navigate these times.
Altcoins will suffer most
To say that investors have been spoiled over the latest bull market would be an understatement. During the frenzy of Dogecoin (DOGE 1.49%), Shiba Inu (SHIB 0.14%), and everything in between, it seemed as though anyone could throw money at some obscure altcoin and potentially make a lot of money. (To clarify, an altcoin is any cryptocurrency other than Bitcoin.)
That is not the case anymore. When crypto winters arrive, those altcoins that put in monumental gains are the ones that suffer the most. Last crypto winter, the altcoin market cap was destroyed.
After hitting an all-time market-cap high of just under $552 billion, the value of all altcoins plummeted to only $41 billion. This collectively represented a drop of more than 90%. Conversely, while Bitcoin was not spared, it lost only about 75% of its market cap value.
Of course some altcoins did not suffer as badly as others. But the overall trend shows that Bitcoin provides insulation from poor market conditions.
Bitcoin is the safe haven
In order for a crypto winter to truly end, Bitcoin must be in better shape. A good way to gauge the health of Bitcoin is by looking at Bitcoin dominance.
Bitcoin dominance is a statistic represented as a percentage that shows how much of the entire cryptocurrency market cap is made up by Bitcoin. Due to Bitcoin having the largest market cap of the entire cryptocurrency asset class, it is a valuable indicator on the health of cryptocurrencies as a whole.
Before many of the popular altcoins of today were created, Bitcoin dominance never fell below 75%. This means that Bitcoin's market cap accounted for more than three-quarters of the entire cryptocurrency economy.
At the bottom of the last crypto winter, Bitcoin dominance fell to as low as 34%. This shows that more money was in altcoins.
After the massive sell-off in the beginning of 2018 that sent Bitcoin from $19,000 to $3,400 by March, money slowly started to flow back into Bitcoin. As investors looked to get back to the basics, Bitcoin's dominance increased to almost 70%. Eventually Bitcoin rose from the March 2018 lows to above $11,000 by mid-summer 2019.
The best crypto for winter
Currently, Bitcoin's dominance sits at around 43%. If this crypto winter were to follow a similar recovery to the last, then Bitcoin dominance needs to get closer to around 60%.
Patience is key in these times. Instead of trying to allocate more money to speculative altcoins, take the safer route.
To ensure that you make it through this crypto winter, make sure that you are exposed to Bitcoin. If not, there is no guarantee that your favorite altcoin has what it takes to make it to the next bull market.