The world of cryptocurrency has gone through numerous cycles, characterized by periods of rapid price surges, known as bull runs, followed by extended downturns referred to as “crypto winters.” These crypto winters refer to a phase within the cryptocurrency market where investor enthusiasm declines, leading to significant drops in crypto asset prices and trading volumes. Unlike traditional capital markets, the cryptocurrency sector lacks standardized metrics to identify the start of a crypto winter.
Despite the absence of an official declaration by any regulatory body or organization, the trend of declining prices across various cryptocurrencies has been consistent. This trend typically follows a four-year cycle that begins with a price increase of Bitcoin (BTC), leading up to the block reward halving. After the halving, a downturn in prices usually occurs after crypto assets reach new all-time highs.
The most recent crypto winter started in January 2018 and lasted until December 2020. During this period, Bitcoin and Ether (ETH), the two leading cryptocurrencies, experienced significant losses of over 80% from their peak values. Bitcoin had previously reached nearly $20,000, while Ether had surpassed $1,400 before both saw a sharp decline in value by September 2018. The majority of the top 100 listed cryptocurrencies also recorded substantial drops in value.
The crypto winter of 2018 was triggered by various challenges within the industry. One major factor was the high failure rate of initial coin offerings, with over 97% failing to meet their objectives. Additionally, individual investors being overly leveraged and regulatory concerns further complicated the situation, resulting in a significant withdrawal of investors from the market. This downturn in 2018 had a profound impact on the perception of cryptocurrencies, with financial institutions viewing the market skeptically and governments advising caution.
The market’s fortunes started to revive in July 2019, with a resurgence in investor enthusiasm that propelled the price of Bitcoin beyond the $10,000 mark. However, this revival was short-lived as the outbreak of the COVID-19 pandemic in March 2020 caused a significant liquidity crisis that affected global markets, including the cryptocurrency market.
Despite the downturn in 2018, Ethereum made significant developments during this period. The popularity of the blockchain-based game CryptoKitties in early 2018 highlighted the need for Ethereum to improve scalability, leading to the exploration of sharding. Sharding involves dividing the blockchain into smaller, more manageable segments called shard chains or data layers. Each shard operates independently, allowing for parallel processing of information and enhancing scalability.
However, Ethereum’s transition to a proof-of-stake (PoS) blockchain was slower than expected, with multiple delays along the way. The roadmap for Ethereum in 2017 included two major upgrades, Metropolis and Serenity, to introduce proof-of-stake and sharding. By June 2018, Ethereum abandoned the hybrid approach and focused on a more straightforward PoS system known as Casper 2.0. This transition was completed in 2021, illustrating the complexities involved in upgrading such a significant blockchain platform.
In June 2018, the United States Securities and Exchange Commission (SEC) classified Ether as a non-security, making it the second asset, after Bitcoin, to receive such a designation. This decision sparked discussions and debates in subsequent years.
The year 2019 saw Ethereum gaining mainstream recognition and significant growth in decentralized finance (DeFi). The total value locked in DeFi protocols increased to $667 million by the end of the year, with MakerDAO dominating the sector. Decentralized exchanges, particularly Uniswap, also experienced significant growth in trading volume and liquidity.
Ethereum also attracted attention from major corporations, financial institutions, consumer brands, and celebrities. Basketball player Spencer Dinwiddie tokenized his NBA contract on Ethereum, allowing investors to invest in a portion of his futures contract earnings. The Sacramento Kings launched a rewards program using a token built on Ethereum, and the Star Trek franchise announced the issuance of collectible ships as nonfungible tokens on Ethereum. Samsung introduced a developer platform focused on Ethereum and a smartphone with an integrated Ethereum wallet.
Overall, the history of cryptocurrency has been marked by cycles of bull runs and crypto winters, with significant developments and challenges along the way. Despite the volatility, the industry continues to evolve and gain recognition in mainstream sectors.