A Brief History of the Boom and Bust Cycle

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Cryptocurrencies are a notoriously volatile asset class. They’re marked by extreme highs. And those highs are often followed by major dips. When a dip in price is prolonged, it’s often referred to as a crypto winter. We’ve seen them before. And we’ll probably see lots more of them in the future.

The first crypto winter can be traced back to February of 2011. Back then, the price of a single Bitcoin (BTC) hit $1.06. But shortly thereafter, it dropped down to $0.67. The nearly 40% decrease in value was enough for some naysayers to declare crypto dead. If only we had a crystal ball back then.

Before 2011 even came to a close, Bitcoin managed to not only reclaim its previous highs, but soar to new ones. It came close to being worth $30 a coin mere months later. And then crypto winter came again. By November, it crashed all the way down to $2.14 a coin.

The following years were marked with general indifference by the general population. Bitcoin had its fans. But they were relatively few and far between. Nonetheless, mining continued. And the Bitcoin believers continued to horde more and more crypto. Somewhat under the radar, the value of a single Bitcoin ballooned up to more than $1,200 by the end of 2013.

Just as quietly, the value of Bitcoin retreated to less than $180 a coin in the crypto winter that froze over the markets in January 2015. At these points though, the term crypto winter hadn’t yet entered the lexicon. There were just speculative bubbles and busts to the scant few journalists that actually covered crypto at the time. The term crypto winter came about as a postmortem after the great crypto crash in 2018.

The First Real Crypto Winter

By 2017, cryptocurrency went mainstream. Bankers and financial analysts actually started to take note of it. Retail investors became bullish. But there were still plenty of folks who poo-pooed the idea that this sort of digital currency could ever truly catch on. All the while, the price of Bitcoin and Ethereum (ETH) soared.

The price of a Bitcoin rose from $900 to a just shy of $20,000 over the span of less than a year. You couldn’t turn on the news without someone talking about the stuff. Crypto was the talk of the town. But as it went mainstream, a whole lot of early adopters read the writing on the wall. It was time to cash out. And thus, hundreds of crypto millionaires were minted.

Crypto was so popular in late 2017, that some companies doled out Bitcoin to their employees for holiday bonuses. But the timing wasn’t ideal with a crypto winter around the corner…

Fast forward to the beginning of February 2018 and the price of Bitcoin fell by roughly 65%. And just about every token out there followed suit. The first “official” crypto winter erased many investors dreams of an early retirement… As well as their nest egg. As the year drew on, the crypto market collapsed by an estimated 80% off the highs at the end of 2017.

When crypto investors sold their stake, it pushed down the price dramatically. And in what seemed like a blink of an eye, the crypto dream appeared dead for those new to it. Many investors that got in at the high-water mark eventually lost the stomach for it. The crypto winter continued long past the actual season. Long enough for the majority of investors to eventually sell their stake at a loss.

Following the News  

The gift of hindsight affords us the ability to look back and say, “of course.” By the beginning of 2018, just before the crypto winter really took hold, the deck began to stack up against cryptocurrencies…

Rumors were swirling that South Korea was going to put the kibosh on crypto trading. Around this time, the largest OTC crypto market in Japan was hacked to the tune of $530 million. And things didn’t get better for crypto investors as 2018 dragged on. Facebook (Nasdaq: FB), Google (Nasdaq: GOOG) and Twitter (NYSE: TWTR) all banned ads for initial coin offerings and token sales.

Meanwhile, application programming interface keys at Binance were compromised. This large scale phishing attempt led to a halt in trading. And by that time, many investors simply had enough.

This should all sound somewhat familiar. The ebbs and flows in the crypto market follow the news very closely. When PayPal (Nasdaq: PYPL) added a crypto checkout function in 2021, prices went up. When China started talking about a crypto ban, it sent prices tumbling. The same thing happened earlier in the year when Russia’s central bank started talking about a ban.

Now, in the wake of Terraform’s LUNA and stablecoin collapses, another crypto winter is upon us. The stock price of the popular crypto exchange Coinbase (Nasdaq: COIN) paints a pretty good picture of how bad things have gotten. In turn, Coinbase has initiated a hiring freeze. And another popular exchange, Gemini, is cutting 10% of its staff. It’s ugly out there. But not if you have a couple of bucks to invest.

The Bottom Line on Another Crypto Winter

For those that got in during the highs of 2021, we know it hurts to watch your portfolio shrink. The crypto markets have been getting pummeled. And if history is any gauge, things aren’t likely to get better very soon. The freeze from a crypto winter tends to take many months – if not a couple of years – to thaw.

But if you’re investing for the long haul, now looks like a good time to buy. At the very least, we know you’re not getting in at the high. And as we’ve seen before, cryptocurrencies are resilient and cyclical. It’s just that the current cycle might take a while to play out.

In the meantime, we anticipate some mild ups and downs in the crypto markets. But between now and the next Bitcoin halving (which has historically been a major catalyst for upward momentum in the cryptosphere), we’ll be doubling down the tokens we think have the best long-term use cases…

The cryptos that stick around for the next couple of years could bounce back to those all-time highs. And eventually, the sellers will trigger another crypto winter after new highs are hit. It’s a vicious cycle. But it can be a very profitable one too. If you’ve got the stomach for it.

Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dogs Dorito and Pretzel.



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