Crypto winter is coming – but it will be a ‘warm winter’, venture capital firm says

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A crypto winter is here, but it will be a “warm winter,” according to a crypto bull.

Bitcoin may have fallen more than half from all-time highs, but “there’s so much more to it,” said Edith Yeung, general partner at Race Capital.

“In a sense, the ‘warm winter’ is basically going to kick out everyone who really [wants to be] there for short-term gain,” she told CNBC’s Street Signs Asia last week, emphasizing that cryptocurrency is a long-term game.

The term crypto winter refers to an extended period of falling digital coin prices in the market.

Cryptocurrencies have lost around $1.9 trillion in value since peaking in a massive rally in 2021.

Bitcoin, the world’s largest digital coin, is around 68% off its all-time high of nearly $69,000 in November.

Yeung said she remains bullish on digital tokens for the long term because its appeal is that “crypto is really about Web3.”

Web3 has become a buzzword among those in the crypto industry. Proponents say it’s the next generation of the internet, one that’s “decentralized” and isn’t owned by a few big tech giants.

Proponents suggest that crypto and blockchain technology could be a big part of it. For example, a web3 service can run on a particular blockchain such as ethereum or solana. Users may be required to hold tokens associated with these blockchains in order to use a particular service or even have ownership of that application or business.

“I think there is a whole generation of internet [users who] I really believe that “you can’t monetize my data anymore…the internet should belong to us,” Yeung told CNBC.

“That’s why there’s such a push with crypto because the ownership of ethereum or solana is really the user who owns that piece of token, which is just a piece of this internet.”

The Crypto Problems

Even though Yeung suggested it would be a “warm winter” for the crypto market, the problems for the industry so far have been unprecedented.

The nearly $2 trillion drop in the value of cryptocurrencies was triggered by the sudden collapse of an algorithmic stablecoin called terraUSD which saw its sister token luna become worthless. Several crypto firms, including the now bankrupt hedge fund Three Arrows Capital, had extensive exposure to terraUSD.

Meanwhile, loan companies like Celsius, which took risky trade bets, faced liquidity problems and also filed for bankruptcy.

These issues have led to contagion in the cryptocurrency industry.

James Butterfill, head of research at CoinShares, is skeptical of the term “warm winter.” The crypto winter has been “brutal,” he said, citing the fall of Three Arrows and the drastic drop in bitcoin prices.

“Bitcoin prices fell 74% from peak to trough at one point – this closely matches the 83% drop seen in 2018 and should be taken in context that the market is significantly larger and has a base of ‘much wider investors now than he had back in 2018,’ Butterfill told CNBC in an email Monday.

The biggest challenge right now for crypto lies in the uncertainty surrounding the Fed’s monetary policy and whether the central bank will slow the pace of interest rate hikes, said Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank.

Markets are anticipating Federal Reserve Chairman Jerome Powell’s speech on the Fed’s next policy move at the Jackson Hole summit on Friday. Any slowdown in the pace of rate hikes could be positive for crypto markets, Hasegawa said.

“I think the Fed will gradually have to deal with some signs of an economic slowdown, so my medium-term outlook is somewhat optimistic,” Hasegawa said.

Meanwhile, Butterfill pointed out that it is difficult to predict the Fed because the economic picture remains mixed.

“A decision to become less hawkish could be very supportive for Bitcoin prices. While the Fed’s hawkish policy kicked off this bear market in December/January, a dovish stance could push it out of its 20 trading range. $25,000 to $25,000,” he said.

Bitcoin versus Ether

Ether, the second largest cryptocurrency in the world after bitcoin, is the native token of the Ethereum blockchain. Sol is the native cryptocurrency of solana, a public blockchain that supports decentralized financial applications that aim to recreate traditional financial systems, like banks and stock exchanges.

When asked if Ethereum has stronger underlying fundamentals than Bitcoin, Race Capital’s Yeung said the two cryptocurrencies are “very different.”

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“Bitcoin is digital gold,” she pointed out, saying ethereum and solana are similar to “decentralized cloud services” where applications are built on the blockchain network but run by “many, many people.”

Ethereum and solana are blockchains that position themselves as a platform on which developers can build applications. Meanwhile, Bitcoin was created to be a payment service and is therefore different from Ethereum and Solana.

Ether has so far outperformed bitcoin massively since the two digital coins bottomed out in June due to a highly anticipated Ethereum network upgrade.

CNBC’s Arjun Kharpal contributed to this report.

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