Crypto trading amidst tech winter: Should you still invest in crypto?
Much of the tech world is experiencing a massive upheaval. Tech giants like Meta and Tesla are all seeing their stocks plummet in the wake of unfulfilled promises and questionable development choices while bringing their employment rates down.
However, cryptocurrency went through its own long winter before the rest of the technological sector, and they’ve been showing subtle signs of improvement. So what will 2023 bring for crypto trading amid the global tech winter?
Speculations and forecasting are challenging to read in the current landscape. Formerly safe bets have become increasingly risky ventures, and what little remains in the volatile crypto market may yet save itself. However, that all may depend entirely on crypto’s ability to regain the trust it lost during the crypto winter.
The appeal of cryptocurrency
Cryptocurrency has always been a volatile asset. It promises the highest of highs and the lowest of lows.
Though the technology dates back much further, people are familiar with its beginnings in Bitcoin, a crypto token introduced as open-source software in 2008 by several unknown programmers.
The coin was designed as a decentralized, worldwide currency system that can be used without the intervention of central banks. This allows users to transfer funds and money across different countries without worrying about various governments and regulatory systems.
It gained prominence by selling itself as an alternative to the slower, more inaccessible mode of regular fiat currency, crying out for the potential freedom and advancement of digital currency.
New cryptocurrencies entered the market over time, leading to the asset’s greatest disadvantage – volatility. Its fluctuating value and technical intricacies made it difficult for common investors to trust it. However, when crypto exchanges like Binance and FTX found their way into the market, investors were given a tool to truly understand the functions of the technology.
As a result, around the end of 2017, the cryptocurrency market saw some of its most extraordinary highs–and, later on, some of its most brutal falls.
To the moon and back
Investors saw some of crypto’s highest soaring prices at the tail end of 2017 when the value of Bitcoin came out twenty times its initial worth, leaping from $1,000 to an explosive $20,000.
What was once considered a group of tech enthusiasts’ utopian pipe dream informally entered many investors’ consideration in that year, leading to cryptocurrency being the acknowledged financial system it is today.
CME Group, a well-established futures marketplace, began listing cryptocurrency in its futures and options. Older and more traditional financial institutions like J.P.Morgan Chase also began developing financial advisory teams for cryptocurrency, despite much of the initial outcry about the currency’s feasibility.
The volatility of cryptocurrency, however, remained its biggest sticking point for the financial market. Early in January 2018, just a few months after its spectacular peak, Bitcoin fell to $10,000, losing half of the growth it had first attained.
Despite its great fall, cryptocurrency remained a rewarding investment for less risk-averse investors. Its promise of decentralized and anonymous trading kept its allure for many.
Tech and crypto winter
While the crypto and tech industries have seen many rises and falls, there was little quite like the one that came after the collapse of FTX.
In 2022, two major stablecoins (cryptocurrencies that peg their values to physical assets, such as fiat money or gold) plunged in value, bringing thousands of investors’ equity and trust down with it. Despite TerraUSD and Luna’s claims of stability, both coins crashed in value once they depegged from the U.S. dollar.
While the crash alone was a disastrous moment for crypto investors, it only marked the writing on the wall for what was to come.
In November 2022, major crypto exchange FTX declared bankruptcy, and its founder, Sam Bankman-Fried, was later charged with fraud. Due to the popularity of the defunct exchange, other exchanges like BlockFI struggled to maintain their standing, and crypto firms across the board saw their value plunge in the market.
The cryptocurrency ecosystem has since suffered from an arduous season of sheer discontent, which has only been worsened by the tech winter that would later seep in when global recession and failed developments led to tech giants losing massive amounts of their stock value.
Promise and threat of regulation
As cryptocurrency suffers scrutiny for financial mismanagement and risk, the tech winter may stall further innovations in the ecosystem. That said, crypto may receive second wind from one of its greatest fears.
With the loss of billions in investor equity this winter, more and more regulators have focused on the relatively wild and unregulated crypto market, looking to provide the guidelines and authorization necessary to prevent future crashes.
Crypto enthusiasts often bemoan these potential regulations, owing the landscape’s earlier success to its freedom from restrictions. However, some crypto experts point to regulation as a potential saving grace for the faltering ecosystem.
Investors currently have a hard time trusting cryptocurrency in its unregulated state. The lack of transparency from collapsed systems like TerraUSD and FTX led to the market’s current winter, and thus, hopes for clearer guidelines and law enforcement may be the only way to maintain its growth.
Experts also affirm that without more regulations and protections for investors, cryptocurrency will see further drops, even if it can climb back onto its feet. While it may take much longer for regulations to be implemented, the market seems to need them in the near future.
Future outlook for investors
Despite the current downturn, investors may still look ahead to a more tenable future for cryptocurrency.
Analysts recommend that investors avoid panic selling. Similarly to the collapse of Bitcoin in early 2018, the value of crypto assets may take surprising turns in the coming months, depending on internal and external financial factors. It is unwise to maintain losses without further research or development.
Investors should also consider reevaluating risks in any asset they invest in. Larger and stabler cryptocurrencies, such as Bitcoin, have already seen significant recovery from the FTX collapse. However, smaller cryptocurrencies with less trading volume may still pose a high risk in the current tech winter.
The current downturn may even be an unexpected boon for certain investors. Investing in cryptocurrency in its current decline may lower its purchasing cost, leading to quicker and more significant returns in the case of recovery.
As 2023 rolls along, the future of cryptocurrency trading remains uncertain. Equity losses and declining morale will likely lead to a negative outlook in the future, but investors should keep in mind that this has not been the first winter in crypto’s brief history. Enthusiasts everywhere can only now hope they will once again see spring.