Crypto winter has come: what should you do about it?

A “crypto winter” is here as bitcoin and other digital currencies fall sharply again. The big question is how long this one will last.

Bitcoin is sinking like a stone again, down 15 per cent amid worries about crypto company collapses as investors and traders wonder what the future looks like for digital currencies.

Here are five key questions and answers.

WHY THE LATEST DROP?

News that the world’s largest cryptocurrency exchange Binance was buying its rival FTX, because FTX was running low on cash, sparked fears that many more crypto companies are in financial trouble.

While bitcoin, the world’s biggest crypto, fell more than 14 per cent in just a few hours, other digital currencies were hit harder – with number two cryptocurrency Ethereum sinking 17 per cent and FTX’s FTT digital token dropping 75 per cent.

HOW FAR HAS BITCOIN FALLEN?

Bitcoin is back down at levels it was in June, but in the past 12 months has lost about 70 per cent of its value as the speculative shine disappeared from almost all of the 12,000 cryptocurrencies traded in the world today.

The overall value of the cryptocurrency market is down about two thirds, and many experts say we are now in a “crypto winter” – a prolonged downturn in digital currency values. The previous crypto winter lasted from early 2018 to late 2020 – before prices exploded more than five-fold during 2021.

During last year’s boom, Bitcoin surged from $14,000 to $91,000 and others rocketed higher even more spectacularly, before crashing back to Earth in 2022.

Bitcoin and other cryptocurrencies have fallen apart during 2022. Picture: iStock

SHOULD I SELL OUT?

If you believe in the future of Bitcoin and other digital currencies, you are probably likely to be holding on now and hoping for this crypto winter to pass more quickly than the last one.

Finance experts everywhere always tell people to avoid selling assets at the bottom of a market, but there remains strong debate about whether cryptocurrencies created out of thin air are really assets.

Some had viewed them as a digital version of gold, supposed to stand strong in times of global uncertainty and high inflation, but that hasn’t happened this year.

SHOULD I BUY IN?

That would be a brave move in the current environment, but fortunes have been made in the past from crazy-brave decisions.

If the cash crisis believed to be hitting crypto companies is just beginning, prices could fall a lot further.

It’s always a good idea to follow traditional investment advice of not putting all your eggs in one basket and diversifying your money across different assets, sectors, companies and countries.

If sticking some money into highly-speculative cryptocurrencies floats your boat, nobody is stopping you.

WHAT DOES BITCOIN’S FUTURE LOOK LIKE?

Ha ha ha ha ha ha ha ha ha! That’s the big question that has bamboozled even big global investors.

Some giant US investment funds forecast big future gains for their crypto clients early this year only to watch to their clients’ investments sink by more than two thirds.

The technology behind bitcoin is called blockchain and is widely seen as the future of transactions globally, but whether that soon translates to success or failure for bitcoin and its thousands of crypto friends remains uncertain.