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Crypto Winter 2021: What Is It? Is it Coming? And How Low Could Bitcoin Go?

What goes up must come down; that’s the rule of the investing game. There’s always the threat of a market correction — or worse — looming, meaning investors need to be savvy about timing their purchases and sales. Cryptocurrency is no different; in fact, it’s a much more volatile asset than traditional stocks and even more exemplary of the saying. And this morning, there’s nervous chatter about Crypto Winter 2021. The threat of the crypto Black Tuesday is something that comes up frequently when discussing the longevity of these assets. Could we be eyeing up such a market crash? Currently, there’s a lot of factors at play that bears will use to argue to affirmative.

A concept image with a bear figuring standing on top of crypto tokens.
A concept image with a bear figuring standing on top of crypto tokens.

Source: eamesBot / Shutterstock

Cryptocurrency has been tearing through the autumn. Bitcoin (CCC:BTC-USD) prices soared above all-time highs. Pupcoins like Shiba Inu (CCC:SHIB-USD) and Floki Inu (CCC:FLOKI-USD) have flexed remarkable gains. Ethereum (CCC:ETH-USD), Cardano (CCC:ADA-USD) and many other networks have undergone upgrades. But, it’s crucial to remember that this big autumn comes after a very depressing summer season for the market. Bitcoin dropped from $60,000 to under $30,000, Dogecoin (CCC:DOGE-USD) slipped from 73 cents to under 20 cents, and interest in non-fungible tokens (NFTs) waned significantly from early 2021.

The market ebbs and flows at a breakneck speed. One has to be multiple steps ahead if they want to even keep pace. And so when this chatter about a potential crypto correction closing out the year heats up, many are turning their attention to this possibility. Market dips across the board this morning are not just leaving investors scratching their heads like normal. Rather, they are wondering if they have to switch up their investing strategies.

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What Is Crypto Winter 2021?

What even is Crypto Winter 2021? It’s not a hot new digital currency convention; it’s simply what crypto investors are calling a potential market crash before the end of 2021. It doesn’t really have anything to do with the coming cold months, either; what we witnessed over the summer with crypto prices slumping could also be considered a crypto winter.

For context, the market correction in the early summer months had numerous catalysts all working in tandem to drag down the market. China began to clamp down hard on crypto miners within its borders. As the largest source of crypto mining in the world, the fiasco significantly hampered the mining of proof-of-work currencies like Bitcoin. These miners had to either give it up or move their operations elsewhere; many fled to bordering Asian nations with less stringent blockchain laws.

Meanwhile, Elon Musk helped to drag down prices by accepting and then quickly dumping Bitcoin as a payment method for Teslas (NASDAQ:TSLA). Musk took to Twitter to voice his displeasure in the power consumption of Bitcoin mining and other proof-of-work cryptos. The bearish tweets have in turn spawned a class of investors focused on more sustainable digital currencies.

These factors, alongside grander themes like economic reopening and people turning back to a strong dollar, helped to spark the market correction that held down the crypto asset class until late August, when NFTs and rebounding Bitcoin prices helped to buoy the industry and get it ready for its current bull run.

What Factors Are Pointing to a Crypto Winter in 2021? How Low Could BTC Drop?

Things have been great for a while now, but these things also must come to an end at some time or another. And globally, support for cryptocurrency is hitting quite the rough patch. China is continuing to slam Bitcoin and crypto in general, calling it “extremely harmful.” The Chinese government is working alongside its National Development and Reform Commission to implement harsh penalties on institutions found to be using energy to mine cryptocurrency.

Meanwhile, Kazakhstan — a favorite relocation for Chinese miners who escaped the nation’s regulations — appears to be slightly fed up with miners as well. The Central Asian nation is facing power shortages after seeing its crypto mining hash rate double early in the summer. Now, the Kazakhstani government is placing limits on the amount of power miners can use.

Things on the American front aren’t going much smoother, either. President Joe Biden’s infrastructure bill has been signed into law, including its new regulations on the tax reporting of crypto gains, as well as other blockchain assets like NFTs. Crypto investors look at these provisions highly unfavorably, as they restrict the financial freedoms inherent in the digital currency industry. Meanwhile, the dollar continues to find strength; it is currently at a 16-month high, showing how far we’ve come in the economic recovery from the novel coronavirus pandemic. This strength does indirectly affect crypto as a market, especially as investors look to take profits in the limping crypto industry and put it into more traditional investing venues.

Bitcoin is down about 7% this morning — a loss of over $4,000. And given its huge market share, price volatility in Bitcoin almost always translates to volatility across the board. This summer, BTC saw $30,000 in losses, dragging the whole asset class down with it. Of course, this could be a possibility if things took a turn for the worst. But, if recent performance of BTC against bearish attitudes is any indicator, things won’t be that bad. A market correction was predicted last month for when the first Bitcoin futures ETF went live on Wall Street; analysts expected Bitcoin to lose as much as 50% after the launch. However, the coin only briefly dipped below $60,000 before regaining these losses.

On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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