Crypto winter: What does it mean, and could it extend into an 'ice age'?

The cryptocurrency market goes through cycles similar to the stock market. Just like the bear phase in a stock market, when negative investor sentiment drives prices sharply lower for a prolonged period, the crypto market can go on a downward spiral. When prices drop without any recovery in sight for over a year it is called a 'crypto winter'.

Some experts believe the recent sharp sell-off hints at the arrival of winter for cryptos. But some believe it could be worse. Crypto could in fact be heading for an "ice age," where prices stay low for years and many investors lose interest, Paul Jackson, Invesco's global head of asset allocation research, told Business Insider recently.

Last week, bitcoin prices dropped to around $35,000, an almost 50 percent drop from the record high of $69,000 touched in November 2021. For many, this decline is reminiscent of the late 2017-early 2018 crypto winter, when the price of the bitcoin fell by 80 percent to a low of $3,100.

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That winter caused the failure of multiple initial coin offerings and led big banks and companies to shelve their crypto plans. Bitcoin had only rebounded to reach a new high in December 2020, at the onset of the COVID-19 pandemic.

The US Federal Reserve's monetary tightening to fight inflation and likely interest rate hikes is dampening bitcoin's assumed role as an inflation hedge and affecting investor sentiment, according to experts.

The proposed ban on the use and mining of cryptocurrencies in Russia, and ambiguous stance on crypto regulations from governments worldwide is keeping investors nervous. Reports suggest the Joe Biden administration will also be releasing a government-wide crypto strategy soon listing the risks and opportunities of the digital assets.

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The crypto market also seems to be tracking the traditional stock market following investments from large institutions. "I think it's related to the rout and withdrawal from risky assets overall," Ivanova told CNBC's "Squawk Box Europe" on bitcoin’s recent decline.

"Cryptocurrencies are no longer an isolated risk asset and are responding to changes in global policy," Clara Medalie, research director at cryptocurrency market data provider Kaiko, told The Wall Street Journal. "It's not surprising that both will start to become more volatile as the liquidity taps turn off."

James Malcolm, head of foreign-exchange strategy at UBS, told Business Insider he thinks problems with crypto technology could be one of several factors, alongside stricter regulation, that could drag the crypto world into another winter.

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"A lot of people in the technology space seem to be questioning whether or not

Antoni Trenchev, co-founder and managing partner at Nexo thinks, “Undeniably, there are regulatory and macro storms ahead, and another leg down to $28,000-$30,000 can't be ruled out in the current risk-off climate."

While many predict that winter is coming for the cryptocurrency market, not everyone believes it will be the same as in 2018. "I'm not looking for a re-run of the last ‘crypto winter,” Trenchev told Bloomberg.

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Some experts are confident this is just a temporary stop for the crypto market before the next big jump. Raj Kapoor, Founder at India Blockchain Alliance and Chief Growth Officer at Chainsense believes, "Even if Bitcoin hits $10,000, it’s still going to hit $100,000 come 2025-26." "Crypto is unrestricted and will always surprise us," Kapoor told International Business Times.

Vijay Ayyar, vice president of Corporate Development and International at crypto exchange Luno, believes the recent slump in crypto is more likely a "correction" than a sustained downturn. "Corrections for BTC usually are in the 30-50 percent range, which is where we are currently, so still within normal correction territory," Ayyar told CNBC.

A key level that most experts are watching for bitcoin is $30,000. If it closes below that point in a week or more, “that would definitely indicate a high likelihood of a bear market,” Ayyar noted.

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Some experts also pointed to the achievements of cryptocurrencies in the past three years pointing out that the market may be just taking a breather. In January, crypto-exchange FTX announced the launch of a $2 billion venture fund to target Web 3.0 opportunities.

There has also been a wider acceptance of various crypto sub-sectors like non-fungible tokens (NFTs) and decentralised finance (DeFi), with major retailers like Walmart filing patents in preparation to create their own cryptocurrency and NFTs.

As Budd White, chief product officer and co-founder at software development company Tacen told Bloomberg, "I don’t believe we are entering a crypto winter because there is still increasing momentum on the build-side — we are just seeing more realistic pricing of what is currently built."