The digital asset market has seen multiple phases characterized by periods of rapid price increases referred to as bull markets, followed by extended downturns known as “blockchain winters.”
Blockchain winter denotes a phase within the digital asset market marked by a decline in investor optimism. This is evident through substantial drops in digital asset values and trading volumes from their previous peaks. Unlike conventional financial markets, the blockchain industry lacks standardized measures to pinpoint the beginning of a blockchain winter.
EXAMINE THE PAST OF DIGITAL ASSETS
However, a pattern has been noticed that generally spans a four-year cycle. This cycle commences with a rise in the price of Bitcoin (BTC), leading up to the halving of block rewards. Subsequently, post-halving, a price decline typically starts once digital assets reach new all-time highs.
The term blockchain winter is not officially announced by any particular regulatory body or institution but is identified by a consistent trend of decreasing values across various digital assets.
This period initiated in January 2018 and prolonged till December 2020.
The Major Crash of September 2018
During this interval, Bitcoin and Ether (ETH), the leading digital assets, encountered a devaluation of more than 80% from their peak values. Bitcoin had previously peaked near $20,000 towards the conclusion of 2017, while Ether had exceeded $1,400 before both underwent a steep fall in worth by September 2018.
Among the top 100 listed digital assets, 95% registered a significant decline in value.
Several inherent industry obstacles triggered the blockchain winter of 2018. These included the notably high failure rate of initial coin offerings, where over 97% failed to meet their goals, along with the issue of individual investors being excessively leveraged. Regulatory apprehensions further complicated the scenario, culminating in a substantial retreat of investors from the market.
The aftermath of the 2018 digital crash greatly influenced perceptions about digital assets. Financial institutions began to view the digital market skeptically, branding it as potentially speculative, while governments globally advised caution regarding digital asset investments.
This period of stagnation altered in July 2019, when investor enthusiasm began to rise, driving the Bitcoin price beyond the $10,000 mark. Nonetheless, this rejuvenation in market fortunes was short-lived.
In March 2020, the outbreak of the COVID-19 pandemic introduced a major liquidity crisis that impacted markets worldwide, including the digital asset market.
EXAMINE THE PAST OF DIGITAL ASSETS
The Ethereum Proof of Stake expedition witnesses new proposals and rearrangements
Despite the significant slump in 2018, the year also witnessed crucial advancements for Ethereum. During this period, Ethereum commenced laying the foundation for its transition to a proof-of-stake (PoS) system despite facing setbacks and rescheduling efforts.
Early in 2018, network congestion was triggered by the popularity of CryptoKitties, a blockchain-based game. This occurrence underscored the necessity for Ethereum to enhance its scalability. Consequently, Ethereum explored sharding, a methodology that partitions the blockchain into multiple smaller, more manageable segments termed shard chains or data layers. Each shard functions autonomously, enabling parallel processing of information, which can substantially boost the blockchain’s scalability.
Nonetheless, Ethereum’s shift to a proof-of-stake (PoS) blockchain progressed slower than anticipated, encountering multiple delays along the way.
As per its 2017 roadmap, Ethereum had two significant upgrades planned — Metropolis and Serenity — to enhance scalability by introducing proof-of-stake and sharding. The Metropolis upgrade was divided into two phases: Byzantine, focusing on privacy enhancements, and Constantinople, introducing a hybrid proof-of-work+PoS system.
However, by June 2018, Ethereum scrapped the hybrid approach in favor of a simpler PoS system named Casper 2.0. Although initially projected for 2019, this transition was finalized in 2021, illustrating the complexities involved in upgrading such a substantial and widely-utilized blockchain platform.
During this period, a notable development occurred as the United States Securities and Exchange Commission (SEC) categorized Ether as a non-security in June. This designation made Ether the second asset, after Bitcoin, to earn such status, sparking discussions and debates in subsequent years.
2019: The era of mainstream recognition and DeFi
In 2019, Ethereum garnered substantial attention due to its technical advancements and decentralized finance (DeFi) expansion within its ecosystem. Over the year, the DeFi sector witnessed significant growth, with the total value locked in DeFi protocols rising to $667 million by December 31, 2019.
DeFi Total Value Locked chart 2019. Source: Medium ..
