Investors frequently use the stock market as a cryptocurrency market alternative. So to understand the cryptocurrency winter we’re in now, it might be useful to dive into the stock market now.
Although there is a lot of selling pressure in both sectors, there isn’t a perfect correlation between cryptocurrencies and stocks. The truth is that the cryptocurrency market is much more nascent and there simply isn’t enough data to make a strong comparison.
But the last crypto winter began in late 2017 and lasted till 2020. Similar to it, the stock market underperformed during that time. As a result, even if these two markets appear to be highly associated (and this year’s correlation has been higher than previous years), it may just be a coincidence.
Despite this, the majority of investors are curious as to when the crypto decline might finish. And the hunt for triggers that could indicate an end to this suffering is on in order to determine when that might occur. These three signs suggest that the crypto winter may be over, and investors may want to keep an eye out for them.
Understanding prior trends revealed by historical data is often necessary to comprehend the gyrations of any market. For instance, historical data is generally used by investors to understand the weak market circumstances at present. Such investors may legitimately anticipate that a few defensive stocks that have thrived during previous downturns will likely also thrive this time around.
For stock investors, that is fantastic. It is commonly known that there have been 27 bear markets since 1928. Every one has lasted, on average, 9.6 months. That would also be a logical assumption for the current bear market.
However, there are problems in estimating the possible duration of this current crypto winter based just on past data. The issue is simple: there aren’t many historical cryptocurrency data sources. As a result, it is challenging to make any kind of claims about the length or severity of current market collapse.
This cryptocurrency winter may continue until 2026. However, that forecast is predicated on the idea that the length of prior crypto winters from 2012 to 2019 is indicative of the current circumstance. Despite the scant information, this is what we can use.
Observe tech stocks
There is a lot of data to rely on when it comes to the stock market, despite the fact that there is a relative lack of information in the crypto industry. Therefore, some parallels may be drawn that are worthwhile taking into consideration for investors who think the relatively high correlation we’ve observed between tech stocks and cryptos will persist.
Experts think that some indicators, such as the strong association between Bitcoin (BTC-USD) and the tech industry, may help predict when this crypto winter will end. The basic premise of the thesis is that cryptocurrencies may follow when tech stocks appear to be turning a corner.
Here is the issue. It is challenging to anticipate with absolute certainty whether tech stocks are “turning the corner” or bottoming. Some analysts predict that if this tech bubble bursts, it might be worse than the dot-com bubble of the late 1990s, but the majority of market observers believe the market has bottomed.
The whole technology industry lost about 80% of its value during that tech meltdown. In addition, the bottom of this bear market didn’t come for years. This crypto winter might still have a long way to go if the performance of the heavily tech-weighted Nasdaq index is any indication. This is due to the fact that during the present bear market, the Nasdaq is only down about 27%.
Adhere to the Federal Reserve
It’s critical to consider the factors that contribute to the strong link between tech equities and cryptocurrencies like Bitcoin. Many analysts think that the relationship between the two may be handled by interest rates.
Indeed, higher interest rates were associated with earlier stock market catastrophes, which many think to have been the cause. That’s because the tide that raised all boats came from the cheap liquidity that supported risk assets in the years before the dot-com implosion and the Great Recession. Investors turned to more protective assets and alternatives, like bonds, when capital became more expensive, as it is today.
As a result, many people have doubts about the cryptocurrency market’s potential to recover quickly. Following the inflation numbers from August, it is obvious that the Federal Reserve will maintain its aggressive policy. To combat inflation, the Federal Reserve today announced an additional rate increase of 75 basis points (0.75%). As a result, money is more expensive, and the availability of liquidity for higher-risk growth assets may decrease.
If the Fed makes a change, perhaps both tech stocks and cryptocurrencies will bottom out. But until then, it’s anticipated that the crypto winter will likely last a while.