Implications of crypto winter on firms in the industry

The crypto industry has recently been plunged into turmoil owing to the prevailing crypto winter. Currently, most of the existing cryptos are enduring a devastating decline in their respective market values and caps. Bitcoin, for instance, recorded its lowest low since 2020 after falling below $20,000 a few weeks ago. Regrettably, the situation remains similar to other cryptos, a development that has continued to instill fears in the mind of investors.

What Is Crypto Winter?

The crypto winter, otherwise referred to as the bear market, usually arises from a persistent decline in the dollar value of crypto assets. In simple terms, it is a terminology used to illustrate the prevailing condition caused by a sharp decline in the prices of crypto assets by more than 20%. This crypto market is currently facing a bear market, which has caused panic among crypto investors and companies operating in the industry.

Factors Responsible For The Prevailing Crypto Winter

The crypto space to date is ravaged by the overwhelming implications of the crypto winter. The prevailing downturn in the global economy has dire consequences in all spheres, including the crypto sector. Bitcoin price slipped to its lowest low when it fell below $20,000 a few weeks ago. However, the world’s largest crypto price has yet to recover from the decline fully.

The incessant hack on crypto firms is one of the major frontrunners of the crypto winter. Chainalysis indicates that hackers have stolen over $1.3 billion in a series of smart contract exploitations within the year’s first quarter. Chainalysis analysis illustrates a rise in the cases of exploitations; the amount of funds stolen in the first quarter of 2022 is now almost equal to the total funds lost to similar incidents in 2021.

Likewise, the downfall of the Terra ecosystem, which resulted in the extinction of its algorithm stablecoin UST, also contributed to the prevailing crisis. Investors reportedly lost more than $40 billion from the crash. The demise of the Terra/Luna project had dual implications on the industry, which consequently resulted in the prevailing crypto winter.

Implications Of The Winter

Crypto exchanges felt the most of the effect of the crypto winter. Though the largest exchange, Binance, is doing well despite the crisis, the crypto exchange is expanding and signing more endorsement deals. The situation is not the same for other cryptocurrency exchanges; some exchanges have lamented the drop in trading volume on their platform. Most of these crypto exchanges survive on transaction charges, and the declining trading volume has severely damaged them.

Apart from exchanges, some firms are also experiencing liquidity crises due to prevailing market conditions, including large crypto companies like Celsius, Voyager, and Three Arrows Capital. A British Virgin Island court has ordered the liquidation of Three Arrows Capital.

Today, many of these firms languishing in debt are still surfing every possible option of settlements. Undoubtedly, the crypto winter has been brutal on businesses in the industry. At the moment, the resilience and endurance of projects, firms, and investors are currently facing grueling tests. Therefore, how well they respond to the situation will go a long way to determining the industry’s future.

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