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Crypto Winter refers to a prolonged period of negative sentiment in the cryptocurrency market. In the traditional stock market environment, the same is called as a bear market. During a crypto winter, a majority of crypto assets would trade in a price downtrend, often perceived as risky to trade. These periods generally have a huge impact on investor sentiment and hampers entry of new investors to the market.
The history of cryptocurrency market suggests that it is not too difficult to identify a potential crypto winter. A huge chunk of crypto assets would be facing a downturn in prices that could drop in double digit percentages. This atmosphere of low asset prices and negative trends could last for several weeks or months. The last time such an environment persisted was between 2018 and the end of 2020.
At the current price levels, Bitcoin is down over 70% from its all time high reached in 2021. Not just Bitcoin, a majority of cryptocurrencies are currently way below their peak price ranges. This is the most common characteristic of a prolonged crypto winter. In the existing bear market, unpredictability on when the crypto assets could recover is making it difficult for investors.
In traditional stock market environments, a fall of stock prices by around 30% is generally seen as the beginning of a bear market. The crypto industry, however, experiences a generally higher volatility in assets. On the positive side, many in the crypto industry focus on maximizing from the low prices during bearish times. Investors tend to accumulate more crypto assets for cheaper prices and hold in anticipation of higher returns in bull market environments.
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