All it took was an ominous winter to cast a shadow on millions of those crypto aspirations. Yes, I am talking about Crypto Winter that shook the Crypto world – bringing a sudden unexpected slump in prices. 

How did the world cope then! 

Well! It is so sudden that people are either finding ways to cope or fully dropping the idea of investing in Crypto. 

Oh, is it such a massive fall? 

It is a resounding yes—more than what you have ever seen. More than what appears to be manageable. 

Wait. Wasn’t the 2018 crypto fall considered big too? 

Yeah, you got your facts right. But, let me tell you why this fall is a mighty one. 

So, one big fall was in 2018 with Bitcoin breaking below $20,000. It was a huge plummet![1]

But, what makes this Crypto the biggest fall are -huge promises. Yes! 

Post the 2018 Crypto Winter, industries sought to expand the Crypto market with the hope of sustaining future winters. That was when we were brought into the exciting world of NFTs, metaverse, and real-world applications based on blockchain. [2]

Strong determination. Isn’t it? 

And so were the investor’s interests. They poured more than $30 Billion in hopes of getting a good return. [3]

After all these promises ranging from decentralization to a huge Marketplace and big investments, Crypto became such a huge bet. A Winter after this couldn’t work in its favor. And it didn’t. 

Bitcoin had a massive fall to around $21,105, with Crypto standing at less than 1 trillion. It ended up pushing the investors, lenders, and crypto startup owners – All in huge distress. [4]

Oh, that’s sad. Will Crypto ever make a comeback? 

Oh yeah, it may, but the traditional way. I mean, Investors and purchasers have already started complaining about the ever-inflationary nature of Crypto. 

So, what will the future adoption look like? 

Will it be the decentralized way? 

Or will it get into the confines of the government? 

Huge taxes!

A massive regulation!

Defeating the very purpose Crypto was designed for? 

Woah, I had my brain fall out. 

Okay, relax! Let us simplify this spillover effect of Crypto Winter one by one. And let us see whether Crypto can overcome this storm – emerging as a possible replacement for flat currency. 

Let us, one by one, discuss the spillover effect of Crypto Winter.

But why are we discussing the Spillover effect of Crypto Winter? 

To see whether Crypto wins this argument of replacing traditional currency or not. As, It depends on how well Cryptocurrency performs compared to traditional finances when subjected to volatile situations, including inflation, Regulation, etc. 

Protection against Inflation 

We are all aware of how the covid and then the Russian-Ukraine war disrupted the worldwide economy – leaving a huge overall impact on GDP. It led to a sudden increase in the price of essential commodities – Petroleum and oil. [5]

Undoubtedly It had a spillover effect on the economy of all the countries. But, the limited question we must answer today – Could Crypto escape this effect? 

It may sound not very pleasant. But, NO. Sadly, it couldn’t. 

But wasn’t Crypto designed to protect us against inflation? 

Yeah, sure it was. 

But according to sources, the Bitcoin price had already fallen twice in 2021, which caught up with the inflationary prices. Secondly, the liquidity crunch urged governments to charge a higher price to businesses, including Crypto startups. [6]

So, tell me. Did Cryptocurrency perform any differently when subjected to inflation? 

Umm, no, it didn’t. 

But what about StableCoins?

Well! Yes, Stablecoins were meant to act like a reserve asset, just like Gold that can be exchanged in times of crisis. But, even this didn’t seem to work. 

Whatttt!

I understand the helplessness, but what can we do when even the largest DEFI ecosystem, Terra, collapses. 

How did that affect something as promising as stablecoins? 

The creators of Terra created a huge pool of networks in a short span. And Stablecoins was their biggest selling point. After they caught up with hyperinflation, it had an immense effect on exchange and investment rates. [7]

It isn’t that much like a central system. When it collapses – it leaves a Domino effect. 

How does Crypto win the argument of decentralization, then? 

To further elaborate upon this, let me give you the example of banks and how Crypto performs no different. 

Banks and Crypto – act similar?

So, how does a bank work? 

Simply put, it works on treasury yields. 

Now, what is this high-flying word? 

It is simply the sum of the amount we deposit in a bank. The bank then uses this money to lend to investors, receive interest on them, and pay back a small part of the interest to us. 

Sounds simple? What if I told you that Crypto is no different? 

Listen out patiently before accusing me of drawing baseless comparisons. 

In times of inflation or economic crisis, the bank usually responds by decreasing the interest yields and increasing the interest rates – leading to a slowdown in the economy. 

And a similar approach has been taken by Crypto lenders. Bitcoin miners respond to Crypto Winter by either liquidating their assets or selling the entire balance sheet of coins – leading to a huge decline in lending and interest yields. [8]

Seems no different than traditional finances to me. 

What about you? Would you still believe the currency replacement promises? 

It is not only the same as traditional currencies in almost all aspects but is also worse off when compared to traditional ones. 

HOW? 

Let us know the maintenance price

All the transactions through banks and other e-banking services occur uniformly through a third-party service provider. 

But in the case of Cryptocurrency, the cost of monitoring financial transactions is quite high as it is enabled through a complicated blockchain process. And the Winter has further exacerbated those prices, with a single transaction of Ethereum costing dozens of dollars. 

Since mining also has been hugely affected as they are falling short of resources to facilitate transactions – the blockchain available for transactions has got limited, creating a spillover on currency exchange & investment. [9]

So, Is Regulation a Solution?

Before giving an objective answer, I would like you to delve deeper into how Regulation is to be done. 

Take the example of India, for instance. Here, Governments are planning to set up Crypto mining units and attach a tax amount for Crypto that offsets the mining cost. This may also make governments responsible for preventing Crypto thefts or sudden surge or drop in prices. [10]

Price control how??

The price of Crypto depends on the supply and demand chain gap. When countries start mining blockchain locally, they can keep the supply proportionate to demand – leading to stable prices. 

But will that even remain decentralized anymore? 

This question is giving me some real worry. 

Will Crypto ever go mainstream? 

It depends on how countries respond to the Winter. You never know how some may still see the potential of Crypto and double down on the efforts to mainstream Crypto. 

But replacing traditional currencies is a far cry from where we see things surfacing right now. While countries like Canada treat Crypto as a commodity similar to Gold, the US is confused but has kept it as a currency for now. 

With so much confusion and uncertainty, the Crypto future seems bleak. The only thing we have as a savior appears to be heavy Regulation on Crypto. With Regulation in place – Price fluctuations are checked, and so is malware. 

But, ask yourself one thing over here. 

Will it then ever become a substitute for traditional currencies, or will just end up complementing the same?