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nevertheless Bitcoin (Bitcoin -2.16%) The price of the world’s largest cryptocurrency is down over 40% from a year ago.
A cryptocurrency winter essentially means that the price has dropped significantly and stayed at that level for weeks or months. Since 2017, we’ve had a few cryptocurrency winters, so it’s happening more often than you might think.
However, the current situation is unlike any crypto winter of the past, as many crypto-related companies have filed for bankruptcy and trust in the industry has hit an all-time low following the scandalous collapse of crypto exchange FTX. I feel like Could the current crypto struggles turn into a more sustained winter?
why i feel different
For one, there has been a significant decline in activity across the ecosystem. Daily cryptocurrency trading volumes have recently dropped to levels not seen before 2021.
FTX’s meltdown and eventual bankruptcy, including widespread fraud allegations by the company’s founder and former CEO Sam Bankman-Fried, have made crypto investors really nervous.
Many cryptocurrency companies have been exposed to FTX, and the bankruptcy of a large cryptocurrency exchange has caused a domino effect, causing the bankruptcy of many other cryptocurrency companies. Many in the cryptocurrency community suspect there will be more fraud cases and are put on the sidelines until more answers are forthcoming.
crypto bank silvergate capital (SI -8.40%) provides access to the Silvergate Exchange Network, a real-time payments platform, servicing most of the large cryptocurrency exchanges and many other cryptocurrency institutions. Earlier this month, Silvergate reported a nearly 70% drop in deposits as investors fled the industry. CEO Alan Lane reports that the fourth quarter of this year saw a “confidence crisis” that was very different from his nine-year experience in the industry.
Our clients had proprietary traders and market makers who had been trading with each other for sometimes 6 to 8 years and then stopped trading with each other and withdrew virtually all of their deposits. I had some clients that moved. These are crypto-native companies that have moved almost entirely into the US Treasury.
US major cryptocurrency exchange coin base (coin -7.26%) recently announced it will cut 20% of its workforce after laying off 18% of the company earlier this year.
Coinbase CEO Brian Armstrong said on the company’s third-quarter earnings call that this year’s goal is to reduce interest, tax, depreciation and amortization, given the challenging environment. The goal is to be able to operate within a loss of $500 million in adjusted earnings (EBITDA), he said. Coinbase feels like one of the last lines of defense in the struggling cryptocurrency industry, so maintaining the trust of customers and investors will be important to the company.
there is still hope
I still expect the industry to be here for the long term and Bitcoin has had a good rally so far this year.
However, challenges are being felt more prominently than in the past, with major cryptocurrency players seemingly hunkering down for a sustained winter.
Moderating inflation and the end of the Fed’s aggressive rate-hiking campaign may help, but ultimately, investors feel they can trust the industry again, pushing the other side of FTX bankruptcy. I don’t know how long this will take at the moment.
Bram Berkowitz has positions in Bitcoin and Silvergate Capital. The Motley Fool has positions and endorses Bitcoin and Coinbase Global. The Motley Fool recommends Silvergate Capital. The Motley Fool’s U.S. headquarters has a disclosure policy.
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