How To Spot The End Of ‘Crypto Winter’, According To Morgan Stanley

Morgan Stanley (NYSE:MS) has shared some insights on how investors can tell when the cryptocurrency market is recovering from a prolonged downturn, also known as ‘crypto winter’. The term refers to the cyclical nature of the crypto space, which has seen periods of massive growth followed by steep declines.

The firm’s Equity Model Portfolio team, led by executive director Denny Galindo, explains that one of the key drivers of these cycles is the Bitcoin halving event, which occurs every four years and reduces the supply of new coins. The next halving is expected to happen around April 2024.

Galindo compares the four-year crypto cycle to the four seasons of the year, suggesting that we might be entering the ‘crypto spring’, a phase of renewal and potential growth. He also outlines some indicators that investors can use to gauge the market’s position within the cycle, such as:

• The time elapsed since the last peak
• The magnitude of Bitcoin’s drawdown
• The behavior of miners and exchanges
• The Bitcoin price-to-thermocap multiple, which measures the ratio of Bitcoin’s market value to its cumulative mining revenue

The firm cautions that past performance is not indicative of future results and that there are many factors that could disrupt the crypto cycle, such as software bugs or government actions. However, it emphasizes that understanding these cyclical patterns is crucial for investors who want to navigate the crypto space effectively.

One of the main indicators is the time elapsed since the last peak of Bitcoin, which was in April 2021. The blog notes that Bitcoin has experienced an average of 83% drawdowns over a 12-14 month period from its peak in previous cycles. The current drawdown of roughly 80% matches this pattern, implying that the bottom may have already been reached.