The cryptocurrency market has undergone various cycles characterized by periods of rapid price increases, known as bull runs, followed by prolonged downturns referred to as “crypto winters.”
The term “crypto winter” describes a phase within the cryptocurrency market where investor enthusiasm declines. This is evident through significant drops in crypto asset prices and trading volumes from their previous highs. Unlike traditional capital markets, the cryptocurrency sector lacks standardized metrics to identify the start of a crypto winter.
However, there is an observed pattern that typically spans a four-year cycle. This cycle begins with a rise in the price of Bitcoin (BTC) leading up to the block reward halving. After the halving, there is usually a downturn in prices after crypto assets reach new all-time highs.
The term “crypto winter” is not officially declared by any specific regulatory body or organization, but it is recognized by a consistent trend of declining prices across various cryptocurrencies.
This phase began in January 2018 and continued until December 2020.
The Great Crash of September 2018
During this period, the two leading cryptocurrencies, Bitcoin and Ether (ETH), experienced a loss of over 80% in value from their all-time highs. Bitcoin had previously reached nearly $20,000 by the end of 2017, while Ether had surpassed $1,400 before both saw a sharp decline in value by September 2018.
Around 95% of the top 100 listed cryptocurrencies recorded significant drops in value.
The crypto winter of 2018 was triggered by multiple inherent industry challenges. These included a notably high failure rate of initial coin offerings, with over 97% failing to meet their objectives, and individual investors being overly leveraged. Regulatory concerns further complicated the situation, leading to a significant withdrawal of investors from the market.
The aftermath of the 2018 crypto crash greatly impacted the perception of cryptocurrencies. Financial institutions began viewing the crypto market skeptically, labeling it as potentially speculative, while governments worldwide advised caution when investing in crypto.
This period of inactivity changed in July 2019 when investor enthusiasm started to rise again, driving the price of Bitcoin above $10,000. However, this market revival was short-lived.
In March 2020, the outbreak of the COVID-19 pandemic caused a significant liquidity crisis that affected global markets, including the cryptocurrency market.
The Ethereum PoS Journey Sees New Plans and Reschedules
Despite the significant downturn in 2018, Ethereum made pivotal developments during this period. It began laying the groundwork for its transition to a proof-of-stake (PoS) system, although it faced delays and rescheduling efforts.
In early 2018, network congestion occurred due to the popularity of CryptoKitties, a blockchain-based game. This event highlighted the need for Ethereum to improve its scalability. As a response, Ethereum explored the concept of sharding, which divides the blockchain into smaller, more manageable segments called shard chains or data layers. Each shard operates independently, allowing for parallel processing of information and enhancing the scalability of the blockchain.
However, Ethereum’s transition to a PoS blockchain took longer than expected, with multiple delays along the way.
According to its 2017 roadmap, Ethereum had planned two significant upgrades: Metropolis and Serenity. These upgrades aimed to improve scalability by introducing proof-of-stake and sharding. The Metropolis upgrade was to be implemented in two phases: Byzantine and Constantinople. However, by June 2018, Ethereum abandoned the hybrid approach in favor of a simpler PoS system known as Casper 2.0. Although initially expected in 2019, this transition was completed in 2021, showcasing the complexities involved in upgrading such a significant and widely-used blockchain platform.
During this period, the United States Securities and Exchange Commission (SEC) classified Ether as a non-security in June. This decision made Ether the second asset, after Bitcoin, to receive such a designation, sparking discussions and debates in subsequent years.
2019: The Year of Mainstream Recognition and DeFi
In 2019, Ethereum gained significant attention due to its technical progress and the expansion of decentralized finance (DeFi) as an ecosystem. The DeFi sector experienced substantial growth throughout the year, with the total value locked in DeFi protocols reaching $667 million by the end of December 2019.
Initially dominated by MakerDAO, which held 1.86 million ETH (approximately $260.4 million in value at the time), the sector saw an influx of new participants by the end of the year.
Decentralized exchanges also experienced significant growth, gaining traction alongside centralized exchanges. Uniswap emerged as a key player, with its average daily trading volume increasing from $25,000 to $1.5 million, and its liquidity expanding from $500,000 to $25 million.
Furthermore, Ethereum began attracting attention from various sectors, including major corporations, financial institutions, consumer brands, and celebrities.
For instance, basketball player Spencer Dinwiddie announced an initiative to tokenize his NBA contract on Ethereum, creating 90 Ethereum-based tokens. These tokens allowed holders to invest in a portion of Dinwiddie’s future contract earnings plus interest. Dinwiddie received $13.5 million upfront from his $34 million contract through this arrangement.
The Sacramento Kings, a professional basketball team, launched a rewards program using a token built on Ethereum to enhance fan engagement through blockchain technology. In the entertainment industry, the Star Trek franchise announced the issuance of a series of collectible ships as non-fungible tokens on Ethereum, leveraging the platform for digital collectibles.
Additionally, Samsung introduced a developer platform focused on Ethereum and announced a new smartphone with an integrated Ethereum wallet.