Author: Web3 Frontier
Explore the dynamics of crypto winter along key landmarks of Ethereum. Dive into resilience, innovation, and transformation in the blockchain technology space.
The cryptocurrency market has gone through several cycles characterized by periods of rapid price increases, known as bull runs, followed by prolonged periods of downturn, known as “crypto winters”.
The term crypto winter refers to a phase in the cryptocurrency market characterized by low investor enthusiasm. This is evident from the sharp decline in crypto asset prices and trading volumes from previous highs. Unlike traditional capital markets, the cryptocurrency industry lacks standardized metrics to identify the onset of crypto winter.
However, we observe a pattern that tends to span four-year cycles. This cycle starts with a rise in the price of Bitcoin
Bitcoin
$67,588
, leading to the block reward halving. After the halving, a price drop usually begins after the crypto asset reaches a new all-time high.
The term "crypto winter" has not been officially announced by any particular regulator or organization, but the trend of a continuous decline in the prices of various cryptocurrencies has been recognized.
The phase began in January 2018 and lasted until December 2020.
During this period, the value of the two leading cryptocurrencies, Bitcoin and Ethereum
Ethereum
$3,293
, fell by more than 80% from their all-time highs. Bitcoin had previously peaked at nearly $20,000 in late 2017, while Ethereum rose to over $1,400, but both fell sharply in value by September 2018.
Of the top 100 cryptocurrencies, 95% of them fell sharply in value.
Multiple inherent industry challenges triggered the crypto winter of 2018. These include the extremely high failure rate of initial coin offerings, with more than 97% of offerings failing to reach their targets, and the problem of excessive leverage among individual investors. Regulatory concerns further complicated the situation, leading to a massive investor exodus from the market.
The aftermath of the 2018 cryptocurrency crash profoundly affected the perception of cryptocurrencies. Financial institutions began to view the cryptocurrency market with skepticism, labeling it as potentially speculative, while governments around the world advised caution in cryptocurrency investments.
This period of inactivity changed in July 2019, when investor enthusiasm began to heat up, pushing the price of Bitcoin above the $10,000 mark. However, the recovery in the market's fortunes was short-lived.
In March 2020, the outbreak of the COVID-19 pandemic triggered a severe liquidity crisis that affected global markets, including the cryptocurrency market.
Despite a significant economic downturn in 2018, Ethereum also saw key developments. During this period, Ethereum began laying the foundation for its transition to a proof-of-stake (PoS) system, although it faced delays and rescheduling efforts.
In early 2018, the popularity of the blockchain game CryptoKitties led to network congestion. This incident highlighted the need for Ethereum to improve its scalability. In response, Ethereum explored the concept of sharding, a process that divides the blockchain into several smaller, more manageable parts, called shard chains or data layers. Each shard operates independently, allowing information to be processed in parallel, which can significantly enhance the scalability of the blockchain.
However, Ethereum’s transition to a proof-of-stake (PoS) blockchain has been slower than expected, with multiple delays along the way.
According to its 2017 roadmap, Ethereum planned two major upgrades — Metropolis and Serenity — to improve scalability by introducing proof-of-stake and sharding. The Metropolis upgrade was to be implemented in two phases: the Byzantium phase, which focused on privacy improvements, and the Constantinople phase, which would introduce a hybrid proof-of-work + PoS system.
Nevertheless, by June 2018, Ethereum abandoned its hybrid approach in favor of a simpler PoS system, Casper 2.0. Although the transition was initially expected to be completed in 2019, it was ultimately completed in 2021, illustrating the complexity involved in upgrading such an important and widely used blockchain platform.
A notable development during this period was the U.S. Securities and Exchange Commission (SEC) classifying Ether as a non-security in June. The decision made Ether the second asset to receive such a designation after Bitcoin, sparking discussion and debate in the following years.
In 2019, Ethereum received widespread attention for its technological advancements and the expansion of the decentralized finance (DeFi) ecosystem. During the year, the DeFi sector experienced considerable growth, with the total value locked in DeFi protocols increasing to $667 million as of December 31, 2019.
Initially dominated by MakerDAO, which held 1.86 million ETH (worth about $260.4 million at the time), the industry saw an influx of new players by the end of the year.
Decentralized exchanges also experienced significant growth, gaining traction amid the general popularity of centralized exchanges. Uniswap became a major player, with its average daily trading volume increasing from $25,000 to $1.5 million and liquidity increasing from $500,000 to $25 million.
In addition, Ethereum began to attract attention from all walks of life, including major corporations, financial institutions, consumer brands, and celebrities.
Basketball player Spencer Dinwiddie announced a plan to tokenize his NBA contract on Ethereum, creating 90 Ethereum-based tokens. These tokens allow holders to invest a portion of the proceeds of Dinwiddie's futures contracts plus interest. Through this arrangement, Dinwiddie received an advance payment of $13.5 million from his $34 million contract.
Professional basketball team Sacramento Kings launched a rewards program using Ethereum-based tokens to enhance fan engagement through blockchain technology. In the entertainment industry, the Star Trek series announced that it would use the digital collectibles platform to issue a series of collectible spaceships as non-fungible tokens on Ethereum.
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