Money·4 min read

Companies Are Bracing for a Crypto Winter — Here's What That Could Mean for You

A bitcoin that's frozen in ice
Design: theSkimm | Photo: iStock
Jul 1, 2022

ICYMI, crypto prices have been falling over the past few weeks. Since mid-June, Bitcoin and other major coins (think: Ether and Solana) have been quickly dropping in value. So much so that the crypto market has lost about $2 trillion in value since November of last year. Which could be the sign of a general slowdown in the cryptocurrency market. Aka a crypto winter. And whether you’re heavily invested in crypto or not, you could feel the effects. 

Wait. What’s a crypto winter?

Essentially, the crypto version of a bear market.The last crypto winter is generally referred to as the period between about January 2018 and December 2020 when Bitcoin crashed by approximately 80%. Since then, cryptocurrency has become much more mainstream. And it’s now a part of investment portfolios of all sizes, from individuals to S&P 500 companies. 

And why are people talking about crypto winter now?

In part, because of the current state of the crypto market. But also because of how some crypto-related companies are reacting to it. Crypto exchange Gemini recently laid off 10% of its workforce. Coinbase rescinded job offers and extended a hiring pause. And other companies are looking at ways to leverage the downturn. Like FTX’s reported possible merger with Robinhood, which is coming off its pandemic trading boom. 

I’m big into crypto. What can I expect? 

Maybe a lot, maybe a little. It will likely depend on how much exposure you have to cryptocurrency. If you work in cryptocurrency, it could mean facing layoffs in your industry or having a harder time finding new work as companies institute hiring freezes. If you’re invested in crypto, you might see the value of your portfolio shrink even further. Or see it rise. Unlike traditional markets, there’s not a lot of precedence to base future predictions on. So, it’s hard to tell what the future holds for crypto. 

I don’t invest in crypto. So what does a crypto winter have to do with me? 

Even if you don’t own crypto, there’s a chance you could be affected. Because crypto itself isn’t the only thing losing value. The prices of stocks trading on traditional markets could also be affected by what happens in the crypto markets. ICYMI, shares of some publicly traded companies heavily tied to cryptocurrency (hi, crypto exchanges) are currently losing value. 

One example? Coinbase, which has seen its stock shares plummet 75% in 2022. Read: The company has less capital to invest in growing its business. It’s a trend that’s spreading across the larger crypto industry, which isn’t great for the economy as a whole (see rescinded job offers above). And there are quite a few large crypto-related businesses (hi, PayPal). By one estimate, there are currently 62 crypto start-ups worth $1 billion or more. 

Plus, some major companies have added cryptocurrencies to their own portfolios, including big names like Tesla, Block (formerly Square), and MicroStrategy. All this to say, crypto winter could have an impact on the traditional markets that many Americans have exposure to. Even impacting some S&P 500 companies, which many index funds track and many 401(k) plans are invested in. 

Oof. What can I do to prepare?

If companies are thinking about preparing for a crypto winter, it’s likely that you should, too. Here’s what you can do to help protect yourself and your finances. 

  • Diversify your portfolio. A good place to start: Making sure you’re not too heavily invested in cryptocurrency. If you feel like you are, reallocate some of your money to invest in less volatile investments like bonds. 

  • Prep your investments for the long run. Because holding on to your investments for an extended period of time could give them a chance to recover. (HODL, amirte?)

  • Build up your emergency fund. Just like in a bear market, anything can happen. Having some extra cash set aside could help you feel more secure, and help you cover any costs life may throw at you until crypto winter passes. 

theSkimm

A crypto winter could be coming. And while the markets are volatile, you can make your own portfolio more stable by diversifying your investments and building up your emergency fund.


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