Crypto winter is coming, but it will be a ‘warm winter’, venture capital firm says – Reuters

The crypto winter has arrived, but according to the crypto bull, it will be a “warm winter”.

Bitcoin may have fallen more than half from all-time highs, but “it’s much more than that,” said Edith Yeung, general partner at Race Capital.

“In a sense, a ‘warm winter’ will actually kick out everyone who really [wants to be] there for short-term gain,” she told Street Signs Asia CNBC last week, emphasizing that cryptocurrency is a long-term game.

The term crypto winter refers to an extended period of falling prices for digital coins in the market.

Cryptocurrencies have lost about $1.9 trillion in value since they peaked in a massive rally in 2021.

Bitcoin, the world’s largest digital coin, is about 68% below its all-time high of nearly $69,000 in November.

Yeng said she remains optimistic about digital tokens long-term because their appeal is that “cryptocurrency is actually connected to Web3.”

Web3 has become a buzzword in the crypto industry. Proponents say it’s the next generation of the Internet, “decentralized” and not owned by a few big tech giants.

Supporters suggest that cryptography and blockchain technologies can play a big role in this. For example, a Web3 service might run on a specific blockchain like ethereum or solana. Users may need to hold tokens associated with these blockchains in order to use a particular service or even own that application or business.

“I think there is a whole generation of the Internet. [users who] really believe that “you can no longer monetize my data… The Internet should belong to us,” Jung told CNBC.

“That’s why cryptocurrencies are so popular, because the ownership of ethereum or solana actually belongs to the user who owns this token, which is just part of this internet.”

Problems with cryptography

Even though Yeng suggested that it would be a “warm winter” for the crypto market, the challenges the industry is facing are still unprecedented.

The drop in the value of the cryptocurrency by almost $2 trillion was caused by the sudden collapse of an algorithmic stablecoin called terraUSD, causing its sister token, luna, to become worthless. Several crypto firms, including the now bankrupt hedge fund Three Arrows Capital, had a lot of exposure to terraUSD.

Meanwhile, lending companies such as Celsius, which made risky trading bets, ran into liquidity problems and also filed for bankruptcy.

These problems have led to the infection of the cryptocurrency industry.

James Butterfill, head of research at CoinShares, is skeptical about the term “warm winter.” The crypto winter has been “brutal,” he said, citing the fall of the Three Arrows and the sharp drop in Bitcoin prices.

“At one point, bitcoin prices fell 74% from peak to trough — this closely matches the 83% drop seen in 2018 and should be seen in the context of the fact that the market is significantly larger and has a base of “much broader investors than before. in 2018,” Butterfill said in an email to CNBC on Monday.

The biggest concern for crypto right now is the uncertainty surrounding the Fed’s monetary policy and whether the central bank will slow down the pace of interest rate hikes, said Yuya Hasegawa, a cryptocurrency market analyst at Japanese cryptocurrency exchange Bitbank.

Markets are looking forward to Federal Reserve Chairman Jerome Powell’s speech on the Fed’s next policy move at the Jackson Hole summit on Friday. According to Hasegawa, any slowdown in the pace of rate hikes could be positive for the cryptocurrency markets.

“I think the Fed will have to gradually confront and manage some of the signs of an economic downturn in the near term, so my medium-term outlook is somewhat optimistic,” Hasegawa said.

Meanwhile, Butterfill noted that it is difficult to predict the actions of the Fed, as the economic picture remains ambiguous.

“The push to become less hawkish could be a big support for bitcoin prices. As the Fed’s hawkish policy kicked off this December/January bear market, a dovish stance could tempt it out of the $20,000-25,000 trading range,” he said.

Bitcoin vs Ethereum

Ether, the second largest cryptocurrency in the world after Bitcoin, is the native token of the Ethereum blockchain. Sol is the native cryptocurrency of solana, a public blockchain that powers decentralized financial applications that aim to recreate traditional financial systems such as banks and stock exchanges.

Asked if Ethereum has stronger underlying principles than Bitcoin, Race Capital’s Jung said the two cryptocurrencies are “very different.”

“Bitcoin is digital gold,” she noted, stating that ethereum and solana are like “decentralized cloud services” where applications are built on a blockchain network but managed by “many people.”

Ethereum and solana are blockchains that position themselves as a platform on which developers can build applications. Meanwhile, Bitcoin was created as a payment service and is therefore different from Ethereum and Solana.

So far, Ethereum has vastly outperformed Bitcoin since the two digital coins bottomed out in June due to the much-anticipated Ethereum network upgrade.

— Arjun Harpal of CNBC contributed to this report.

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