- 2022 is set to end as one of Bitcoin’s worst years on record;
- 2022’s crypto winter and the triggers;
- Understanding crypto winters,
- What does the road to recovery look like?
Will Bitcoin Recover?
2022 has been more than a roller coaster for Bitcoin (BTC) and the rest of the cryptocurrency industry; it has been the most challenging year for the market. And whether the market survives this trying period or not hangs on a shaky balance.
Source: CoinMarketCap | Bitcoin YTD Chart
With a little over a month left in the year, the fate of 2022 being one of the worst years on record for Bitcoin (price-wise) seems to be a done deal.
That said, the question on the minds of many investors and spectators is: will the market recover? If so, when and how?
Right off the top of my head, the answer to this question is yes, and Bitcoin and the crypto market will slowly recover over the coming months and years. However, as this opinion alludes, it will take quite some time for this to happen.
Before we proceed on breaking down our answer to this question, let’s take a walk down the prevailing factor for the bearish market sentiment: the crypto winter.
The Chilling 2022 Crypto Winter and the Guilty Parties
According to experts, Bitcoin and the crypto market officially fell into a crypto winter cycle on June 18, 2022. However, the fall into this winter was triggered by the Terraform meltdown, which wiped away hundreds of billions of dollars in wealth.
That said, the journey to the bottom did not start with the Terra crisis. An aggressive US Fed monetary tightening policy earlier this year sparked the frenzy that caused a major dip in the market, which led many investors to flee the crypto space and seek refuge in more stable assets. This panic ultimately led to the Terra meltdown, which triggered the crypto winter.
Over the months, the crypto market took more gutting punches that entrenched it deeper within the crypto winter, with the most recent devastating blow being the FTX crash.
Now, let’s take a look at some factors that could play critical roles in the recovery of Bitcoin and the broader market.
The Crypto Winter Cycle Factor- Will Bitcoin Recover
In the coming months, we’re likely to witness some bullish price swings that could send Bitcoin to multi-week highs, inspire investment appetite in many traders, and confirm a migration out of the current bear market. However, this does not mean that we would see prices return to previous highs; far from it.
Crypto-winters are believed to be cyclical, and the existing one should be no different.
Source: Google Images
Following the 2018 bear market, the price of Bitcoin never returned to its previous highs (recorded in 2017) until early 2021. If history repeats itself, as it usually does with the financial markets, then it means we’re still at the onset of this crypto winter. It’s not unreasonable to think that we could wait until 2025 or early 2026 before Bitcoin and most altcoins make a full-price recovery to $69,000.
However, this recovery might not necessarily happen on cue after four years. There has to be an actionable catalyst playing up in the background, usually along the lines of interest and adoption. In 2012, for example, the catalyst that ended the crypto winter was the frenzy around the first notably used cryptocurrency exchange, Mt. Gox, and the rise of the Silk Road.
In 2017, it was the ICO boom that saw the influx of numerous altcoins.
As such, the market will need a major catalyst in the coming years to drive interest and adoption once again.
The Network Effect Factor
While the general outlook remains that Bitcoin and the crypto market would eventually recover to previous standings, there is no fundamental factor backing this.
Take stocks, for example. Company stock is considered valuable to investors and other market participants specifically because it generates cash flow. Profits generated by a publicly traded company are distributed among shareholders in the form of dividends, and these profits can be used to assess the fundamentals of a company against other companies in the sector.
Bitcoin and cryptocurrency simply lack this attribute in all regards. Cryptocurrencies lack the mechanism to generate cash flow, except with the involvement of some form of a third party, such as a lending or staking platform. However, we all saw how lending protocols have fared this year amid the market crisis. Other than that, the value of Bitcoin is based purely on speculation.
This means that the crypto market cannot rely on any innate fundamental factor to rescue it and set it on a recovery path. Instead, it has to rely on what is known as the “network effect” for its recovery. The network effect refers to the derivation of value for an asset through its perceived importance by the public.
Source: Google Images | The Network Effect
The network effect has been the major attribute of value for gold and other precious metals for centuries. While gold has some industrial use cases, most of its value comes from the fact that it is a scarce asset, and humans of all colors and sizes have agreed that it is valuable.
That said, Bitcoin has boosted its perceived network effect over the past few years, and this has served as the major value-driving force leading up to its peak of $69,000 in November 2021.
As you know, Bitcoin has transcended being a speculative asset and now resides on the reserves of some publicly traded companies, venture capital firms, and even sovereign nations.
With that, one can deduce that Bitcoin is now a bit too mainstream (big) to fail flatly. That said, Bitcoin needs to whip up its network effect once again to kickstart recovery and put an end to the crypto winter.