The craze over cryptocurrency reached new peaks in 2021 — even gracing the screen during the Super Bowl.
Yet crypto’s heydays have come to a halt — at least temporarily. Industry experts like Armando Pantoja call the conditions of today "crypto winter".
"When crypto is in a bull market, there's a lot of excitement, a lot of happiness, a lot of hype, a lot of optimism, almost a euphoria, a mass euphoria. When crypto is down in a bear market, which is natural for any market, all that excitement goes away. So there's a lot of depression, sadness. People feel like, you know, all is lost," Pantoja said.
Prices have plunged across the board. Bitcoin, the largest cryptocurrency, peaked at over $68,000 in November of 2021. It’s since cratered over 60%.
"It was the first crypto ever created, but it drives the market. You know, whatever happens to Bitcoin happens, all of the coins get driven, you know, positive and negative depending on what happens to that main coin," Pantoja said.
Crypto keeps evolving since Bitcoin’s inception in 2009. Estimates show there are roughly 20,000 different digital tokens, coins and currencies in existence today. While there are differences between each, the ideas are similar. They live and are built on an underlying structure — known as the blockchain. Even if you aren’t invested in crypto, industry insiders like Dan Hollings say you’ve likely already crossed paths with the technology.
"In a way you're kind of already doing crypto, and yet you don't know it. When you do a transaction using Visa or Mastercard and many other platforms, those are currently being settled and transacted over the blockchain," Hollings said.
Cryptocurrency works off a decentralized ideology, in that it avoids using banks or governments to validate transactions. Instead, a system of computers or miners use encrypted codes to digitally verify and track transactions. The blockchain, in part, fueled its rise in the last decade. And it’s also a key factor in what makes the market so volatile.
"Crypto has a lot of volatility and that is because it's a newer technology. It's a newer industry. People often say, 'Dan, should I buy Bitcoin now? Because it's down.' or, 'should I buy Bitcoin now? Because it looks like it's going up," Hollings said.
"We used to go up 80, 90% in a day. I had a friend that would say, don't even call me unless it's up 30% today. Like, that's how … the volatility was back then. But now it's a lot less volatile … a lot more exchange, a lot more actors in the game," Pantoja said.
By November 2021, Pew Research Center found one in six Americans had invested in crypto. Crypto exchanges, like Binance, Coinbase, and the now-fallen FTX all cashed in on the growing popularity by making it easy for users to buy and sell coins. But economic winds shifted into 2022 with losses, especially among tech stocks, correlating with drops in the crypto market.
"We always thought that if the economy was going down, Bitcoin would be a safe haven and people will put money into Bitcoin to escape inflation of the U.S. dollar — but that hasn't happened," Pantoja said.
Crypto is no stranger to boom or bust periods. The value of a single Bitcoin fell from a high in 2013 of $1,200 to less than $180 a coin in January 2015. And after a steep climb Bitcoin’s price collapsed in 2018 from $20,000 to $6,000. But unlike other cycles, the ongoing "winter" coincides with a possible recession.
"Technically we started to crypto winter about 410 days ago roughly. So we've been in it for a while on in a down decline," Pantoja. said.
The major signs of the "seasonal shift" became apparent in May. TerraUSD, a so-called "stablecoin" which is pegged to be a one-to-one exchange rate with the U.S. dollar, collapsed and set off a domino effect. Major crypto players like hedge fund Three Arrows Capital, investment firm Voyager Digital, and crypto business Celsius all fell weeks later. Concerns over the state of the industry hit a new high after the unraveling of FTX.
"FTX was seen as a very stable exchange and in if that fell, anything could fall," Pantoja said.
The exchange, once valued at $32 billion, is now nearly worthless after declaring bankruptcy. Its founder, Sam Bankman-Fried, is charged with defrauding investors — something he told the New York Times he didn’t intentionally do.
"I made a lot of mistakes, there are things I would give anything to do over again. I didn’t ever try to commit fraud on anyone," Bankman-Fried said.
FTX’s demise is stirring up new conversations in Congress over regulation.
"My fear is that we will view Sam Bankman-Fried as one big snake in the crypto Garden of Eden. The fact is crypto is a garden of snakes," said Rep. Brad Sherman.
"If we are going to have it, we have to regulate it. Someone has to be in charge. We have to make sure that we don't continue to defraud the American people and that's when the government comes in," said Rep. Juan Vargas.
Also weighing on crypto investors is an uncertain economic outlook, with the Federal Reserve projecting more interest rate hikes well into 2023. Industry experts like Pantoja say patience is key over the next 12 months.
"I think it'll be a big opportunity for a lot of people because '23 is going to be a building year," Pantoja said.
It's an outlook investors hope will ring true and bring an end to this chilling crypto cycle.
