The cryptocurrency market peaked at nearly $ 3.000 trillion last November, but then abruptly reversed course due to the economic uncertainty that brought many Investors to unload risky assets. The spark turned into a fire, as initial losses forced to liquidate highly leveraged cryptocurrency positions (debt-financed investments), which resulted in even greater losses.
Unfortunately, the risky bets weren't limited to retail traders. Cryptocurrency lender Celsius often paid double-digit interest rates on deposits of Bitcoin (BTC 1,33%) and Ethereum, and then lent these assets to other entities for a return. In mid-June, Celsius blocked withdrawals following the cryptocurrency market crash, amplifying fear in an already unstable environment.
Additionally, the cryptocurrency industry is still feeling the aftershocks of the collapse of the Terra blockchain, an event that wiped out $ 60 billion and left an once estimated ecosystem worthless. Crypto hedge firm Three Arrows Capital, which had invested heavily in Luna, recently received orders to liquidate its assets after failing to repay the loans. One of its creditors, cryptocurrency brokerage Voyager Digital, recently suspended trading and withdrawals due to liquidity problems fueled by Three Arrows' default.
The domino effect is still ongoing, but the cryptocurrency market has already collapsed 71% from its highs, sending $ 2.000 trillion up in smoke. How long will the cryptocurrency crash last?
A brief history of cryptocurrency winters
The cryptocurrency market has fallen by 50% or more on four separate occasions, including the current dip. However, Bitcoin consistently represented more than 95% of the cryptocurrency market until 2013, meaning the first cryptocurrency winter could more accurately be termed a Bitcoin winter. Either way, investors can learn something by looking at these events.
The first major collapse began in June 2011. Bitcoin lost 93% of its value before hitting bottom in November 2011, some 162 days later. But Bitcoin didn't hit a new high until March 2013, around 631 days after the crash began.
The second major crash began in December 2013. The cryptocurrency market lost 81% of its value before hitting bottom in January 2015, some 406 days later. But the market didn't hit a new high until December 2016, around 1.114 days after the dip began.
The third major crash began in January 2018. By that time dozens of altcoins had gained popularity, so this event may be the most relevant. The cryptocurrency market tumbled 88% before hitting bottom in December 2018, around 342 days later. But the market did not hit a new high until January 2021, around 1.091 days after the decline began.
This may take some time
When looking at the three cryptocurrency winters, the average time to bottom was 303 days, the average drop was 87%, and the average time to hit a new high was 945 days.
To put it in context, the cryptocurrency market reached its last peak on November 10, 2021, which is 235 days ago at the time of this writing. So, if the current cryptocurrency plunge is exactly in line with the average, we are 68 days from the bottom and 710 days from a new high. Of course, every single dip is brought about by different circumstances and it is impossible to accurately predict the end of any market crash.
Furthermore, three figures are certainly not a reliable number, but this is one of the risks. Cryptocurrencies are a relatively new asset class, which means that investors have to navigate uncharted waters. There is no guarantee that the cryptocurrency market will recover, but for risk tolerant investors looking to capitalize on the downturn, Bitcoin and Ethereum are backed by a compelling investment thesis.