Crypto winter: Can investors expect the spring thaw?

2022 has been a challenging year for the digital asset market, with prices dropping by over 60% of their previous values. This change has hit investors particularly hard following the outstanding years that digital coins had in 2020 and 2021.

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It has caused many to completely rethink their strategies in a bid to grapple with the sudden changes and keep their heads above water as prices lowered more and more each day. The first months of 2023 have offered a respite from this, with the cost of BTC climbing substantially, reaching values not seen in many months, leading traders to start reinvesting and buy Bitcoin with debit card.

However, March has shown a different picture so far, and what the future holds remains to be seen. Although there are many predictions as to what can occur over 2023, the truth is that nobody can be entirely sure. Crypto’s unpredictable nature remains unchanged this year as well, and the fact that the coin is tied to shifts in global markets, world politics and other major worldwide events makes it difficult to determine which path crypto will take this year.

Recent events

In March, a Californian bank traditionally recognized as a hub for crypto transactions and one of the most popular places for cryptocurrency companies to bank discontinued a crypto payments tool. Share prices dropped by roughly 2% in after-hours trading, which concerns retail and institutional investors. The move has affected all major crypto exchanges and well over 1000 institutional investors, sending the market into another period of uncertainty after the previous one had barely ended.

In January, the company had sliced around 200 jobs, approximately 405 of its entire workforce, due to the challenges of operating within the digital market nowadays. During the fourth quarter of the last year, the bank reported losses surpassing $1 billion, with the warning that they are likely to mount over the future. Nevertheless, nobody could have predicted just how the downfall would occur.

The company works with cryptocurrencies in a roundabout way. Instead of issuing withdrawals and deposits, it has set up instant payment networks for individual investors and exchanges, allowing them to buy or sell substantial amounts of fiat money between themselves and even during the night or on the weekend when banks are closed. Therefore, even though the exchange itself doesn’t deal with digital money directly, it has still been hit hard by the industry’s dropping values of last year, as well as its association with a now-defunct exchange which collapsed instead dramatically last year, leading to monumental capital losses for a considerable number of clients.

There’s also the fact that the bank is currently placed under investigation. The American Congress, and, more particularly, a group of senators, have begun probing into the bank’s knowledge of the business practices that led to the collapse of the exchange it was partnered with. Some are even convinced that all the bank managed to do is integrate the infamous risk associated with crypto directly into the world of mainstream finance and traditional banking system with no effort of attempting to mediate it in some way.

Another winter?

The improving prices noticed in the first few months of 2023 have led many to believe that the market is picking up speed and that the bearish tendency over the last months will finally change. Many were even discussing the possibility of a sudden bullish charge. However, that seems a thing of the past at the moment. The price of Bitcoin has flattened due to the recent crash, which, although not as disastrous as the ones that occurred last year, has caused a rift and disturbances within the market.

The price of Bitcoin dropped overnight to 5%, reaching values of roughly $22,300, after managing to hit the $25,000 mark briefly. As a result, altcoins have also had a rough week, affected by Bitcoin’s new slump. As such, it’s most likely safe to assume that crypto winter will remain strong, at least in the near future as well. While the situation is unlikely to become as bleak as it was in 2022, and the markets most likely won’t deteriorate to that extent anymore.

It’s too early to dismiss the previous optimism for 2022 so quickly. There are many other things to take into account, including changes within the stock market and variations in traditional finance. Inflation and interest rates are both figures that crypto is significantly sensitive to, so keeping an eye out on that market should also be able to provide some hints as to the direction in which the cryptocurrency environment will go.

Decentralized finance

One of the most attractive things about cryptocurrencies isn’t just the fact that they are relatively new on the financial market and investors are still getting the hang of them but also the fact that they offer brand-new tech solutions that institutions and organizations can use. One of them is the field of decentralized finance, which has recently begun to be more carefully considered by traders worldwide.

However, the crypto winter has raised concerns about whether or not DeFi will be able to survive the frost. While the system is no stranger to bearish tendencies, there’s no denying the fact that it needs to make some changes to prepare for what’s to come. For starters, the many protocols that worked during the so-called DeFi summer are no longer sustainable.

After climbing interest rates, inflation and the rate of return on Treasury bills reached 5%, interest in the blockchain dimmed, resulting in decentralized finances as well. The best alternative for decentralized finance tools is to develop solutions that can improve centralized finance products, fix their issues and help them expand their reach.

Nobody can predict with complete accuracy how the crypto environment is set to change over the following months. As a crypto investor, your best bet is to keep a watchful eye on market shifts and see how they help prices rise or fall. That’s what will help you perform high-yielding transactions that can improve your portfolio.