Crypto winter can be one of the most unnerving times in a cryptocurrency investor's life. Fortunately, they're not all winters of our discontent, and so far, all crypto winters have come to an end eventually. Read on to learn more about this phenomenon.
What is a crypto winter?
Cryptocurrency trading first launched with Bitcoin (BTC -0.74%) in early 2009, so everything we know about crypto and its patterns is only about 15 years old at this point. Even so, the phrase "crypto winter" has been developed to describe times when cryptocurrencies and tokens take a huge, across-the-board hit in value.
This is generally due to long-term negative sentiment. The value that cryptos have to shed to be considered in a crypto winter is unclear, but if we follow the rule of thumb for bear markets, it would be about 20%. As time goes on, these benchmarks will be more firmly established with historical data.
Causes of a crypto winter
We're still trying to really get a good feel for crypto winters and how they work, but it's generally understood that several destabilizing factors can cause crypto markets to tip into winter territory.
Crypto investors are dealing in an all-or-nothing type of investment. If things are bad, they can go really bad really quickly since there are no business assets to sell that can offset investor losses. When investors lose their confidence, they pull their money from crypto markets, causing them to stagnate or deflate considerably.
Things that might cause a lack of confidence in high-stakes investments like crypto would include global political destabilization, like the war in Ukraine, and major global economic downturns, such as the Great Recession.
Remember that crypto -- unlike stock markets -- is a global market that is constantly trading across the planet. This means that local blips may not cause problems, but widespread global issues can freeze the market.
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