“Has the market bottomed out?” is a multi-billion dollar question.
If you spend a little time in the Web3 community, you’ll find that there are a lot of narco-hopists. The crypto collective consciousness wants to believe that the decline of the past few months is “temporary” and that market prices will rebound soon.
Admittedly, this optimism is hard to sustain.
Market prices tell a worrying story: Bitcoin has fallen 58% from an all-time high (ATH) of around $67,000, Ethereum is down 62% from an ATH of around $4,700, and the overall crypto market cap has fallen from $2.8 trillion 58% to $1.2 trillion. Both the Federal Reserve and the Bank of England are raising interest rates to curb inflation and plan to start quantitative tightening. The thunderstorm for the fifth largest blockchain, Terra (considered by many to be a “blue chip”) further dampened sentiment.
First, the crypto industry is also seeing massive layoffs. Coinbase slashes job postings. Robinhood, Gemini, Brazilian crypto Unicorn 2 TM and Mexico-based Bitso are all reportedly laying off around 10% of their workforce.
Should We Worry About Crypto Winter? How exactly do you define crypto winter?
Review the market conditions of the 2018 bear market. In early 2018, Bitcoin fell 69% to $6,155 in seven weeks from an all-time high of $19,783 in 2017. By the end of the year, the total cryptocurrency market capitalization had plummeted from a high of $830 billion to $120 billion. It was also at this time that the seeds of DeFi were planted in the ashes of ICO mania. Ordinary companies see cryptocurrencies not as an opportunity but as speculation, and policymakers and corporate CEOs see cryptocurrencies as a big scam, a flash in the pan.
…but price signals and headlines don’t tell the whole story.
2022 not 2018
Take a look at the cryptocurrency landscape today. By all accounts, the state of cryptocurrencies today is far superior to where we were after the 2018 bull market ended.
First, the state of DeFi is way ahead of its time. By the end of the 2017 bull run, only about 100 dapps were active. Today, there are thousands on Ethereum alone. NFTs and blockchain gaming are two multi-billion dollar verticals, and we are even seeing early signs of DeFi on the Bitcoin blockchain.
Layer 1 networks are dramatically scaling transaction throughput, whether through Rollup technology on payment channels like Layer 2, Layer 0 interoperability networks (Cosmos, Polkadot), or the Lightning Network. Today, Ethereum’s Layer 2 ecosystem has $5.1 billion in TVL. All of these were just abstract academic ideas in 2018, but are now fully deployed in functional protocols.
Three years ago, the DAO was a humble group of communities, but today it has become a gigantic force with $9 billion in financial backing. No wonder they suck talent from the traditional labor market. DAOs are rapidly developing infrastructure tools and developing solid policies around governance and financial management.
Today, with more and more use cases for DeFi, the ability to speculate and make quick profits is no longer the main reason for investors to focus on cryptocurrencies.
Second, a slew of large institutional players have stepped into Web3’s doors. The biggest firms on Wall Street like JPMorgan, Citi, BNY Mellon and more global banks are expanding their product offerings to crypto assets, or leveraging DeFi protocols directly. Despite layoffs, Coinbase and Robinhood are still launching their own crypto wallets.
Then there’s Big Tech (tech giants) entering the Metaverse: Facebook rebranding as Meta; Twitter, Instagram, and Spotify integrating NFTs; Google and Microsoft either spinning off their own Web3 research divisions or aggressively investing in Web3. Major retail and fashion brands have shifted their business strategies to Web3: Walmart, Warner Bros., Gucci, Louis Vuitton, Nike, and more.
Third, the industry has abundant funds. Unlike the bear market of 2018, builders are hardly dragged down by the bear market. Blockchain startups raised a total of $5.8 billion in 2018, about a quarter of the $25.1 billion raised in 2021.
Halfway through 2022, VCs have reportedly raised $15 billion this year. This figure doesn’t include the massive $4.5 billion announced by a16z last week (check out our podcast with Marc Andreessen and Chris Dixon). Market prices may fall, but ample capital ensures innovation continues to emerge.
Finally — and perhaps most importantly — the regulatory window for crypto policy is rapidly shifting from “no” to “how to regulate” it. This is unlikely to appease the most hard-core techno-liberals, but it is certainly a development. In decision-making circles—especially in the West—the condemnation of cryptocurrencies is starting to sound silly. All good politicians have a keen sense of opportunity, and they can see that it is better to go with it than to oppose it.
Cryptocurrency and the wider Web3 space cannot be ignored right now, and it may even be politically ill-advised to do so given its non-prohibitive nature. Regulatory discussions to ban cryptocurrencies in the past have often led to crypto prices plummeting, but today crypto has become antifragile to this threat.
Web3 innovation is evolving at an even faster pace. Corporate organizations are sluggish, sluggish, risk-averse giants who tread carefully so as not to disrupt the comfortable status quo. A bull market boosts public credibility and removes organizational inertia and skepticism that hinder business growth.
“Will cryptocurrency prices recover?” was a common question in previous bear markets.
“When will cryptocurrency prices recover?” is a better question for today’s bear market.
That’s the crux of it all. The existential threats that many of us faced in previous bear markets are impossible this time around. Even cryptocurrency skeptics can see what we’ve built.
A bear market is a tough pill to swallow
Market corrections are painful. But they also represent a necessary precursor to economic progress.
If you’ve taken any economics course, you should understand that market competition is often viewed as a given, and under the assumption of “perfect competition” companies are “price takers”. These models provide useful insights into how different economic variables interact with each other under other conditions, but they also obscure the most important of all: the market is an efficient process for testing what works.
The free market brings a thousand flowers, but most are rotten apples in disguise. Profit and loss signals are an important mechanism for weeding out rotten apples: unsustainable, indebted losers want to take shortcuts to outpace winners. Without trial and error in market competition — what economists call creative destruction — we’ll never gain the knowledge necessary to understand what works or doesn’t.
David has previously dubbed it a “bear wash cycle”, with the economic contraction forcing developers back to fundamentals. The path pursued by many competing L1s is one of unsustainable growth subsidized by hyperinflationary token releases. During bull markets, these strategies are overshadowed by massive capital injections. But in difficult times, this ugly strategy is exposed.
Booms and busts show how healthy the market is. After each “recession,” the market is better able to know what works and what doesn’t.
Analysts often make bold predictions about market trends.
Given the large number of macroeconomic variables in the equation, these types of forecasts are very difficult to get right.
For every prediction they got right, they could be wrong a dozen times—and then quickly forgotten. The truth is that no one can foresee when the crypto market will recover.
However, a dispassionate examination of the current cryptocurrency landscape reveals many objective reasons for optimism and patience. By all accounts, the “fundamentals” of the current bear market are much stronger than in 2018, and the industry is better positioned to emerge from its current woes.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/is-the-encryption-market-really-entering-a-cold-winter-at-least-this-bear-market-is-very-different-from-2018/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.