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Posted on Aug 24th, 2022

Crypto Winter Is Cold, but We’re Looking Long Term


Haan Palcu-Chang

Crypto Specialist

The last few months have been hard for crypto. Rising interest rates, conflict in Ukraine, and recession talk have resulted in losses in nearly all asset classes, including cryptocurrency.

The tough economic environment coupled with a cascading series of failures from large companies with unsustainable business practices resulted in the total market cap of crypto dropping by over $800 billion from May to June 2022. (1) This has led many to say that we are currently in the middle of another “crypto winter,”—a sustained period of underperformance, similar to a bear market, where negative sentiment is high and asset values are comparatively low.

While crypto markets are still trying to stabilize and gain some semblance of a firm footing, it’s important to take a step back and get some perspective. Yes, for the day trader, prospector, or investor with a short-time horizon, this wipeout of capital has been very bad news.

However, here at Purpose, we continue to remain focused on the underlying fundamentals driving this space, rather than short-term price fluctuations. For those who believe in the staying power of the technologies that underpin cryptocurrencies and are looking five to ten years in the future, it’s important to remember that this asset class is just getting started.

This is the least severe drawdown of all the crypto bear markets

Though 2022 has been challenging, it’s important to note that, in terms of drawdown, this is actually the least severe crypto bear market in history. Glassnode and Coin Market Cap recently put out an in-depth report that gives more insight into this fact. Bitcoin has currently dropped 74% below its all-time high. This is in comparison to 93% in 2011, to 84% in 2015 and 2018, and 75% in March 2020. (2)

Though Ether has gone through fewer bear markets, having only launched in 2015, a similar trend can be seen. In 2015, it pulled back by 85%, 94% in 2018, and 92% in 2020. In 2022, it is currently sitting at -82% off its all-time high. (2)

Highlighting this fact is not an attempt to diminish the impact of the current pullback. However, it is a good reference point for looking long term. The severity of bear markets have been decreasing over time, and this suggests that there is a growing number of investors that are viewing their crypto holdings through the lens of a long-time horizon.

For Ether and Bitcoin, this bear market in terms of drawdown (Source: Glassnode/Coin Market Cap)

Fundamentals are solid for the major networks

It’s very important to note that the market contagion that was sparked by the implosion of the Terra Luna ecosystem in May, only spread to companies and protocols with poor balance sheet management. The underlying blockchain technology continued to function and do its job. (3)

Jonathan Miller, managing director of crypto exchange Kraken’s Australian division, recently articulated these sentiments nicely: “Platforms like Ethereum did not fail when the volatility hit. You saw decentralized markets, decentralized lending models, DeFi in general, not fall over.” (3)

What’s more, developer engagement on many of the leading cryptocurrency blockchains has continued to be steady. Of particular note, is the Ethereum network, which is the most consequential protocol when it comes to Web3 and decentralized application development. Despite the significant drop in value of Ether over the past few months, developer activity has remained stable, which means people continue to build and add value to the network, despite the economic headwinds. And we can see the exact same thing playing out on the Bitcoin network.

Developer activity on blockchains is crucial. Developers supply the apps, upgrades, and maintenance that make a certain network attractive to users. And all metrics point to the developer communities continuing to expand on the vibrant ecosystems already present on the world’s leading cryptocurrencies like Bitcoin and Ether. Good news for the future.

Despite the drop in price of Ether, developer activity is not falling with it (Source: Santiment)

Still early days in crypto

Whether it be through Super Bowl ads, naming rights on large sports stadiums or Home Depot accepting Bitcoin payments, crypto has entered the mainstream public consciousness in many ways. However, amidst this paradigm shift, it’s easy to lose sight of the fact that the entire crypto asset class only came into existence a decade ago.

A recent report by Wells Fargo highlights the fact that in terms of adoption, crypto is roughly where the internet was in 1999-2001, and is following very similar trend lines. In 1996, as key infrastructure was still being built out, and people were just beginning to wrap their heads around the implications and use cases of the internet, global internet usage was 77 million. As network effects started to play out, though, users increased five times by 2000. Ten years later, there were 1.98 billion internet users. Today, that number sits at 4.9 billion. (4)

What’s potentially even more encouraging is that because cryptocurrency is an internet-native currency, being adopted largely by an internet-native generation, in a world almost entirely connected by the internet, there is serious potential that cryptocurrency adoption can actually outpace the historical speed of internet adoption.

Another poignant parallel that is worth looking at amidst a severe drawdown in crypto is, of course, the dot-com bubble. While millions got wiped out, companies that were actually creating value, made it through the turbulence and thrived. Prime examples are Amazon and e-Bay. (5)

During this crypto winter, we have already been seeing the chaff being separated from the wheat. Companies like Celsius and 3 Arrows Capital have been exposed not having unsustainable business practices. Meanwhile, companies that had strong business models, which allowed them to break even or make money during the bear market, will be in a good position to grow and continue to add value to the space as the market rebounds.

This early in the game, it would be hard to avoid market turbulence of the kind we are currently experiencing. But for those that are playing the long game, it is likely that the tides will eventually turn.

We are still early days of crypto adoption

Looking forward

The current market drawdown has been painful for many portfolios. However, for those of us who believe in the long-term applications of these technologies, remember to take a step back and view the market volatility with some perspective. Crypto is still in its infancy and will be subject to market cycles like any other asset class.

If you believe cryptocurrency and decentralized finance will play critical roles in shaping our future, short-term price fluctuations in a still-maturing asset class shouldn’t change that viewpoint. At Purpose, we continue to be bullish and excited about the long-term problems crypto can solve.

—Haan Palcu-Chang, Crypto Specialist, Purpose Investments


  1. “Total Cryptocurrency Market Cap,” Coin Market Cap:
  2. “On-Chain Analytics Issue One—July 2022,” Coin Market Cap:
  3. “Contagion only it firms with ‘poor balance sheet management,’” Coin Telegraph:
  4. “Understanding Cryptocurrency,” Wells Fargo:
  5. “5 Successful Companies That Survived the Dot-Com Bubble,” Investopedia:

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