Opinion The Potential for a Crypto Recovery 

The Potential for a Crypto Recovery 

June 18, 2022

The dreaded Cryptocurrency Winter is most definitely a reality at the present moment. While there was a series of signs that pointed to this possibility, the fact that the same bear market is now ongoing is indisputable. To make things worse, all present parameters point to a long and difficult time to come. For many in the cryptocurrency markets, that is the most disastrous news they could ever get. A Crypto Winter is a period when money is lost and no profits can be made, at least according to the general consensus among the relative newcomers to the crypto market. In many ways that is completely true as the possibilities and openings for profit taking or any kind of long-term meaningful investment narrow down to practically nothing. 

Yet, it is important to recognize that this is not the first time such a period hit cryptocurrencies. The bitcoin network went through several periods that looked and felt like the present moment. Despite those, the same network is still up and operational. So, cryptocurrency experts believe that it is possible for this winter to pass. It is clear that no one can say for sure how long a period lasts. That is why the question that remains is how exactly that process of overcoming the bear market will take place and what will happen to the cryptocurrency space that will allow it to enter a new spring and summer season.  

Present State

The current state of the crypto market is exceedingly worrying. In the last week, all of the major cryptocurrency networks, as well as smaller altcoins got to a very low point. The same applies to both the price range and the market cap of the entire crypto market. Bitcoin went all the way down to the 20,000 USD price range, while ETH did the same for the 1,000 USD barrier. Here, both big cryptocurrencies presently stand and there is no telling if the drop will continue further down. 

Other smaller networks face even higher levels of volatility as many esports players, niche communities, and others who support these digital currencies begin to unload in an attempt to stave off further losses. But, the psychological barrier for BTC at least seems to be holding and now slipped below 20,000 USD in any meaningful manner so far. Now, hopes in the short term are that the same barrier continues to hold and produces a stable footing. In other words, many are desperately clinging to hope that the 20,000 USD mark is the present bear market’s bottom value. 

Macroeconomic Factors

The process of alignment of the traditional stock market and the crypto prices is now well documented. During the latest plunge down, the crypto prices did once more their macabre synchronization with the stock market, especially the stocks that belong to the famous tech companies. Because of this, it is likely that the things that restart the overall markets and the global economy will do the same for the cryptocurrencies as well. 

Presently, the chances of that happening are very slim, mainly because of the ramage of inflation across the globe. In the US, these figures hit a record high in over 40 years and the Federal Reserve will have to take on some very drastic decisions. As it does this, the markets are trying to figure out what other elements besides the inflation numbers are going to play an important part. Currently, it seems that both the war in Ukraine and the connected energy crisis will be the key element in the same complex equation.

Conflict in Europe

The war that broke out once Russia invaded Ukraine is definitely a turning point in the modern history of Europe. After 70 years, two national powers are in a massive land war for the first time since WW2. That has had a shattering effect on the economy of not just the involved countries, but the European Union and the whole world. The influence is clearly negative, as the EU and the West began a process of uncoupling from the economy of the Russian Federation. 

The process includes a range of sanctions as well as a practical end to the Russian market for Western companies. When it comes to the chance of a cryptocurrency rebound, it appears that the same will have to include some manner of war coming to a close or at least stabilizing drastically. As long as it continues in this brutal, bloody, and unpredictable manner, the conflict in Europe will not allow investors to sleep easily. Until they do, the possibility of an end to the Crypto Winter remains slim.

Energy Crisis

Directly connected to the war between Ukraine and Russia, the energy crisis is almost literally draining the life out of the global economy. With the European Union waiting for the winter season with little clue how it will compensate for the sanctioned Russian gas and oil, practically all industries are bracing for problems and difficulties. There is no easy way to overcome the ongoing energy crisis that is in many ways a longer and more deep-rooted problem than the war itself. Crypto is also a part of the same problem, with many proof-of-stake networks seen as an unnecessary burden for an already very thinly stretched energy supply in the West. 

Overcoming that short supply is a question of science as much as it is a question of the economy. Renewable sources are almost certainly the main factor in that solution, but their scalability and availability are simply nowhere near where it has to be to end the energy crisis. Instead, a process of scaling down consumption seems to be a high priority, as it is currently happening in Australia. There, regions are asking their customers to try and spend less on electrical power. Chances are that the same principle will apply to crypto recovery. Until the environment is right, the investors will spend more modestly and with more caution, waiting for a global change of fortunes.