Over the weekend, there was a significant surge in crypto options liquidations, which led to a sharp decline in cryptocurrency prices. This situation could potentially represent an opportune moment for investors to buy. The crypto market experienced a downturn from Friday to Monday, with Dogecoin (DOGE) plummeting by 13.5% and Solana (SOL) decreasing by 11%. Even more established cryptocurrencies were not immune; Ethereum (ETH) saw an 8.5% drop, while Bitcoin (BTC) fell by 3.8% during the same period.
Ethereum’s decline was particularly impactful, erasing $46.4 billion from its market capitalization—an amount surpassing the total value of Dogecoin. Bitcoin’s market cap also experienced a significant reduction, totaling $87.8 billion, which was nearly equal to Solana’s entire market value. The widespread downturn in the crypto sector was triggered by two interconnected events. Many traders opted to realize profits following substantial gains in recent months. An announcement last Thursday regarding lower Federal interest rates initially boosted coin values but also raised concerns that the increase could be short-lived, prompting many to sell.
This surge in selling activity led to numerous margin calls for investors who had made bullish bets using borrowed funds. Data from Coinglass, a crypto options trading platform, indicated that there was a near-record spike in liquidations of crypto options on Sunday, September 21, with the volume of forced sales across various cryptocurrencies almost setting a five-year high. This raises the question: Is this price decline a precursor to a prolonged crypto winter, or merely another volatile dip in an inherently unpredictable market?
Revisiting the Four-Year Crypto Cycle
The cryptocurrency market has demonstrated a tendency to rise and fall in four-year cycles, often aligned with Bitcoin halving events. This current cycle is the fourth iteration, triggered by the most recent halving of Bitcoin mining rewards in April 2024. The last cycle began during the early struggles of the COVID-19 pandemic, saw a surge in crypto prices in 2021, and concluded with a downturn known as a crypto winter in 2022. This downturn coincided with broader economic challenges, including a battle against inflation, and was compounded by significant crises within the crypto realm, such as the collapse of the Terra Luna stablecoin and the bankruptcy of the FTX exchange. Therefore, it might be unwise to expect this cycle to mirror that unique set of circumstances.
Looking back to the second halving cycle around July 2016, Bitcoin experienced a meteoric rise in value, jumping from $660 to $17,760 by December 2017. However, this dramatic increase was followed by a significant correction, with prices falling to $6,300 over the subsequent 11 months, and further dipping to approximately $4,000 until the next halving in 2020. The first cycle, which occurred in 2012, is less relevant today due to Bitcoin’s status as the sole cryptocurrency at that time and the general public’s unfamiliarity with digital currencies. This leaves us with a limited data set for analysis. If this fourth cycle shares characteristics with earlier ones, it could indicate a price surge for Bitcoin and other cryptos toward late 2025 and into most of 2026, followed by a potential crypto winter until the next halving in 2028.
Understanding Why This Cycle Might Differ
Relying on historical price patterns for market predictions is a form of technical analysis, which may not be particularly effective. The dynamics of halving and subsequent market downturns would have been altered significantly had the pandemic not occurred, or if Bitcoin ETFs had been approved earlier than 2024. Real-world events can heavily influence market conditions, including cryptocurrency valuations. So, what other factors are at play? Currently, there are several positive catalysts for crypto prices: Institutional investors are increasingly gaining exposure to cryptocurrencies, partially thanks to the established history of Bitcoin and Ethereum trading through exchange-traded funds (ETFs). Corporations are also following suit, with entities like MicroStrategy purchasing Bitcoin and Ethereum for their balance sheets. Furthermore, a number of other cryptocurrencies are expected to gain ETF approval later this year, unless the Securities and Exchange Commission delays their approval until 2026. Additionally, promising Web3 applications are emerging, such as games from Mythical Games, the Brave web browser, and an innovative travel app from American Express. Should the concepts central to Web3—privacy, decentralization, and ownership of content—gain traction, the demand for various cryptocurrencies could see a significant increase.
Considering the Risks
However, the landscape is not without its challenges. Cryptocurrencies remain a relatively new and untested asset class, with notable investors like Warren Buffett questioning their intrinsic value. The looming threat of quantum computing, which could potentially undermine the encryption safeguarding Bitcoin and Ethereum, is another concern. Will the crypto community adapt to quantum-safe algorithms before facing severe risks? While these threats are real, they are largely long-term concerns rather than immediate dangers that arose recently.
Putting the Weekend’s Price Drop into Context
In my view, the recent decline in crypto prices represents a normal price correction following the initial surge associated with the latest halving cycle. As of September 23, Ethereum’s value has still increased by 54% over the past year, while Bitcoin has risen by 77%. Dogecoin has shown impressive growth of 122%, whereas Solana, while still positive, has seen a more modest increase of 49%. Looking ahead, there are more factors supporting a bullish sentiment for cryptocurrencies than bearish ones. Price fluctuations are simply part of investing in volatile asset classes. Over the long term, leading coins like Bitcoin, Ethereum, and Solana are likely to perform well, provided they navigate the aforementioned risks successfully. In summary, while I cannot guarantee that a significant downturn in the crypto market won’t occur, it would be unexpected before the fall of 2025. It is too soon to label this as a crypto winter or even autumn—more accurately, it resembles a momentary lapse, akin to leaving the crypto fridge door ajar.
