Opinion The Differences between the Crypto Winter of 2018 and the Present Market Collapse

The Differences between the Crypto Winter of 2018 and the Present Market Collapse

June 25, 2022

The world of crypto has been in this situation before. Many of those who did never experience the process of a drastic loss of value in the crypto markets will most definitely see it again if they chose to stick around. That is great news for all the trolls and meme lords that stalk the crypto space and are just waiting for something like this to happen. For many, that is a form of self-destructive creativity, where many who are invested directly into the cryptocurrencies like bitcoin or ethereum, no matter if they are everyday individuals or top esports players, find a macabre pleasure in poking fun at their own loss. 

However, even with this process that is still in the Crypto Winter of 2022 very much ongoing, there are still many things that can be learned. With that in mind, the natural comparison goes to the period some four years ago, when the crypto markets also went through a long and hard chilling process. That ended up being the Crypto Winter of 2018. Whether or not this time around things will be very different is impossible to say, but there are still many things that are already evident to those who have been paying attention to the actual processes in the cryptosphere, and not just the entertaining memes. 

More Regulation

One of the main fallout moments from the recent breakdown of market prices will come from the most disturbing potential for the long-term health of cryptocurrencies – market regulation. The calls for more regulatory insight will grow both louder and stronger as the collapse of the Terra blockchain and its stablecoin becomes clearer. These took out billions from the market simply because they were built on insatiable pillars when it comes to the actual technology they are using. 

These, along with shadow banks and other similar mechanisms that appeared in recent years have the potential to truly devastate the unsuspecting investors. Here is where the regulatory oversight has to step in, one way or another. For many, that is the worst possible news that might come from the government and the regulators, but with the latest crash, it is hard to imagine a future where the same does not take place. Once more, the ventures that are built on solid foundations will find a way through this as well – the ones that are not should be worried, but so should be their users at any given moment. That setup is unsustainable and the crash simply once more underlined the same idea in a brutal and very damaging manner. 

ICO Craze

One of the big drivers of the 2018 collapse was the problem of the ICOs or initial coin offerings. Back then, 2017 saw a huge boom in these ventures, as so many new coins began to come to the scene. That includes sensible projects that became big altcoin networks that still exist, but also many incredibly flimsy ideas and a huge number of outright scams. All of them wanted to raise money to make the next bitcoin network and turn 100 USD into 10,000 USD in a matter of a year or two. A lot of good came from the ICO boom – first of all, it tested the Layer 2 networks to their limit. That is mainly ethereum, which saw so many tokens built upon its ETH smart contracts.

That period tested the ETH concept to the maximum and offered an insight into its issues and flaws, especially the scalability of the network in the face of multiplying user influxes. It also boosted the token price of the ETH to several times its value before the ICO boom. But, the boom ended and the collapse was a big problem for anyone invested in any network, not just ethereum. An advantage of the current bust is that it involves no similar fundraising mechanism that could become a major problem down the line in individual countries. In comparison, China clamped down on its ICOs in a drastic manner and found that over 90 percent were fraudulent in some manner. Currently, no such sub-market exists to be discovered and then pulled apart by regulators and even law enforcement agencies of individual nations.

Higher Integration

In 2017, the listing of the bitcoin futures was one of the key drivers of the end-of-the-year push in terms of the price and market cap of the bitcoin network. It is still seen as a landmark occasion that managed to expand the institutional presence of cryptocurrencies to a level that was considered impossible only a few years prior to that. That is especially true when things like Mt. Gox are taken into consideration. 

Today, however, crypto is very much integrated into the different parts of the overall economy, even its macro facets. That integration goes both ways, which is why the price of individual tokens is now rocked every time the Fed decides to do something. The same goes for company coffers which are now often full of tokens. It is enough to look at companies like Square, Tesla Motors, or MicroStrategy and find hundreds of millions of USD in digital assets. They are not dumping them either at the first sign of trouble. 

Silver Lining

It is thought to avoid comparison to the old hard times when times are hard yet again. Whenever a crash happens, it is clear only in hindsight and there is no escaping that conundrum – wisdom appears only after the deed, not before it. In 2018, that wisdom was lacking for many ICO investors and others who bet big on networks that fizzled out before the next expansion of the crypto market. In 2022, a lot of money has been lost yet again on the crypto market. The losses will likely continue in the coming months as well. But, for all of its faults, 2022 is not 2018. Crypto is here to stay and the next Crypto Summer will likely be even more intense than the last one.