Things are getting cold in the cryptocurrency markets once again and that is not a piece of big news for many, especially those who were not too enthusiastic about the recovery prospects back in August. With the month slowly coming to a close, the crypto token prices slid down once again. That process saw the price of the BTC token drop below 20,000 USD, leaving many wondering if the next slide down will drop the value of tokens even lower. Chances of that seem to be ever-increasing in the wake of the slow but sure march towards a US recession, but more likely a global slowdown in economy on par with 2008 and 2009.
The same is exacerbated by the ongoing range of macroeconomic crises, but also the fact that the winter in the northern hemisphere is creeping closer. That period will likely usher in many problems and challenges for individuals across the globe, but in all likelihood, it will also press hard on the crypto market. With that in mind, a significant drop in crypto token prices and overall market capitalization seems to be very likely before the spring of 2023 comes around.
Changing Consumption and Weather Patterns
The concept of an energy crisis in Europe dates back at least a year, all the way to 2021. Back then, the issues that are now opening up practically any news segment were back then little more than economic curiosities, backed up by changing global climate conditions. The key element in the start of the same crisis last year was an abnormally low potential coming from renewable energy sources, mainly wind turbines scattered across western and northern Europe.
These capacities have been going up over the previous two decades and many countries, especially those with coasts on the Atlantic and the North Sea began building them in large numbers. Over the summer months, these usually generate a lot of electricity that goes into the cooling of cities and other locations across the countries. Previously, many of the same nations, like Germany or the UK, did not demand a lot of energy expenditure for cooling, as summers in the more northern parts of Europe were usually mild in comparison to the Mediterranean and other more southern parts of the continent. However, 2021 was a year that the same pattern changed substantially and did so in a way that triggered a crisis.
Multiple Energy Crisis
Saying that the European Union, along with most of the world, is facing an energy crisis would be a gross understatement. The present situation is not just alarming but something that is forcing many nations across the world to plan for the worst-case scenario of complete energy infrastructure shutdowns in parts of the same countries. Strangely enough, this is impacting many countries that have been following a range of best practices diligently for decades. For example, Switzerland is a prosperous nation that has been doing everything right according to the common wisdom of the post-WW2 period. It first built several nuclear reactors to help in its development and then gradually made plans to phase these out. The country uses a lot of renewable power as well and focuses on green energy production.
However, 15 percent of its consumption comes from natural gas that it bought from Russia. With the outbreak of the war, that gas supply was under threat, and the country, with such limited use of gas, never built any storage facilities. Now, many administrators in the same nation say that the country will lack the very same 15 percent of energy expenditure. Many other places are in the same boat and that is not good news for any digital currency blockchain, especially those that run using proof-of-work networks. These will be, in the atmosphere of an overall lack of energy sources, under a huge amount of public pressure in the northern hemisphere once the winter hits in full force.
The lack of energy across the EU and the rising inflation and economic worries in the US are slowly but surely building up to a very demanding winter across the Western sphere of influence. That is why it is no wonder that many points of political tensions are also brewing up. These involve mainly the EU block that is hesitant to completely disregard the potential of using Russian energy sources. On the other side of the political equation are those who are determined to push through this winter and after it is over find a way to become completely separated from all Russian energy production.
Presently, the second option seems very unlikely as the simple calculus remains on the side of the Russian energy products. In other words, the EU does not seem to have even a theoretical potential to replace those energy sources without wearing off into a recession at the very least. The fact that there is an ongoing crypto winter adds to the same process of reasoning. This is not the time for tech stocks or anything similar to see any breakout moments. Instead, investors are hunkering down and preparing for even worse moments to come in terms of financial possibilities and investment opportunities.
Lack of Options
In theory, the downturn in the investment space for digital currencies is the perfect moment to usher in technological advancements. That is what is happening right now with things like the ethereum Merge that allowed for the proof-of-stake concept to actually start working. Other networks, like solana are trying to do the same with a range of projects. But, that does not mean that the same changes in tech capabilities are going to put an end to the crypto winter.
Previous weeks showed several unsuccessful breakout attempts and these were not an anomaly. Instead, as it often happens in the domain of esports and other digital ventures, prolonged negative pressure will result in a strong downward dip. While the same does not need to happen during the winter of 2022/23, the road down seems a lot easier than the opposite direction.