Investors fear ‘crypto winter’ is coming as bitcoin falls 50% from record highs

As cryptocurrency investors reel from the strong clearance in bitcoin and other digital currencies, some fear the worst is yet to come.

Bitcoin, the world's largest virtual currency, briefly fell below $33,000 on Monday to its lowest level since July. It has since rallied above the $36,000 mark, but is still nearly 50% down from a record high of nearly $69,000 in November.

Meanwhile, the entire crypto market has lost over a trillion dollars in value since bitcoin's all-time high, as major tokens like ether and solana followed the No. 1 digital currency to trade lower. Ether has more than halved in value since it peaked in November, while solarium has suffered an even steeper drop, falling by 65%.

That got some crypto investors talking about the possibility of a “crypto winter,” a phrase that refers to the major bear markets in the history of the young digital currency market. The most recent occurrence occurred in late 2017 and early 2018, when Bitcoin dropped as much as 80% from all-time highs.

David Marcus, the former head of crypto at Facebook parent Meta, seemed to admit that a crypto winter had already arrived. In a Monday tweet, he said: "It is during crypto winters that the best entrepreneurs build the best companies. This is the time to refocus on solving real problems instead of pumping tokens."

Nadya Ivanova, director of operations of the BNP ParibasAffiliated tech research firm L'Atelier said it is not yet convinced a crypto winter has arrived, but the market is "in a cooling period now." That might not be so bad, she says.

"Over the last year, especially with all the hype in this market, many developers seem to have been distracted by the easy profits from speculation in NFT (non-fungible tokens) and other digital assets. A cooling off period could actually be an opportunity to start building market fundamentals," Ivanova told CNBC's "Squawk Box Europe."

Crypto's defeat has come along with a slippage in world stocks. Experts say the involvement of large institutional funds has meant that digital assets are increasingly intertwined with traditional markets.

The S&P 500 has fallen 8% since the beginning of the year, while technology nasdaq the index is down more than 12%. And the correlation between the performance of bitcoin and that of the S&P 500 has been increasing lately.

The merchants fear potential interest rate increases and aggressive monetary tightening by the Federal Reserve will drain liquidity from the market. The US central bank is considering taking such steps in response to rising inflation, and some analysts say it could spell an end to the era of ultra-cheap money and sky-high valuations, especially in high-growth sectors. such as technology, which benefits from lower rates, as companies often borrow funds to invest in their businesses.

"I think it's related to the loss and withdrawal of risky assets in general," Ivanova said of bitcoin's recent decline.

Downward moves in major digital currencies have been a boon for stablecoins, or digital currencies that track the value of sovereign currencies like the US dollar. USD Coin, the second-largest stablecoin, has added more than $5 billion in market value since Sunday, according to data from CoinGecko.

Still, investors are concerned about the prospect of further crackdown on the crypto industry. Last week, Russia's central bank proposed to ban the use and mining of cryptocurrencies, mimicking a similar move by neighboring China. And the US government is reportedly preparing to launch a strategy to regulate cryptocurrencies next month.