The young cryptocurrency market is facing the most pivotal period in its history.
Bitcoin has fallen 55% since reaching an all-time high of $69,000 in November 2021. Just a few weeks ago, Terra, the second-largest DeFi ecosystem, collapsed in the largest catastrophic event in the history of the cryptocurrency market. Retail, institutional and even corporate investors lost more than $60 billion in LUNA and UST in a matter of days as the 7th and 10th cryptocurrencies by market cap collapsed.
To complicate matters further, the correlation between cryptocurrencies and U.S. stocks is at an all-time high in 2022.Combined with the war in Ukraine, the highest inflation rate in 40 years, and U.S. monetary policy are all headwinds for the cryptocurrency market’s downward trend over the past 6 months.
Confronting another crypto winter can be unsettling. However, since 2018, the industry has undergone an accelerated evolution, with the last cold winter lasting about 18 months, leaving hundreds of projects born in the ICO era frozen in our memory.
This article compares the crypto winter of 2018 to the current 6-month bear market trendtrying to assess whether a “crypto winter” is really coming, and where the cryptocurrency industry can look forward to in the coming months.
The ICO Era and the First Crypto Winter
In 2017, fueled by the ICO boom, the cryptocurrency space experienced its first apparent expansion period, peaking in December of that year with a major bull market, with many existing startups and new projects utilizing cryptocurrencies as a new funding mechanism.
From a macro perspective,At the time, there was optimism that the economy would continue to recover.Epic Games’ game Fortress Heroes generates $8.5 billion in annual revenue, while Apple is the most valuable brand, and tech stocks are booming.
The excitement surrounding cryptocurrency startups has attracted a lot of capital into the space, most of which are from retail investors. Many businesses have changed their names to include “blockchain” or “cryptocurrency,” and some have even decided to reorient their entire operations to capture the trend — reminiscent of the DOTCOM bubble.
However, blockchain adoption at the time was low and even less regulated than it is today.By the end of 2017, only 104 Dapps were up and running, when the total market capitalization of cryptocurrencies exceeded $800 billion for the first time. Cryptocurrencies such as BCH, MIOTA, DASH, and XMR are in the top 10 by market cap along with BTC, ETH, LTC, and XRP.
Lack of regulation and too much money pouring into waste projects, making this nascent industry quickly unsustainable. It is estimated that in the ICO era, 90% of projects fail less than 6 months after launch. However, projects that have become mainstream in today’s industry, such as Decentraland and Enjin, were also born during the ICO era.
Multiple scams and failed projects have created a sense of uncertainty for the entire industry. After Bitcoin’s price hit a record high, reaching nearly $20,000 in December 2017, a series of events put enormous pressure on the cryptocurrency industry, causing the biggest bull run ever to turn into a grueling crypto winter .
While Bitcoin hit a record high, CME, the world’s largest derivatives exchange, also launched its first Bitcoin-based futures.Institutional investors are massively shorting Bitcoinexerting unprecedented selling pressure on crypto assets.
Additionally, rumors of a possible ban on cryptocurrency trading in South Korea and other Asian countries, as well as a hack that cost Coincheck $530 million and halted trading on the Japanese OTC exchange over the next few months, have all contributed to the bear market. advent.
Finally, the price of Bitcoin collapsed to $7,700, down 65% from its December 2017 high.Over-leveraged retail investors lose a lot of money, and market instability looms over regulationthese factors led to a brutal and long winter that froze most of the still nascent ICO projects.
The crypto winter of 2018 lasted nearly 18 months.Apart from these prosaic figures, this period is characterized byhardly any interest in participating. Investor interest returned in July 2019 when the price of Bitcoin surged past the $10,000 mark and the market entered a recovery period, but the market crashed again in March 2020 shortly thereafter.
The crypto winter of 2018 was caused by a combination of factors inherent to the industry. The uncertainty brought about by the high failure rate of ICO projects, the image of over-leveraged individual investors, and the skepticism of upcoming regulations create the perfect setting for the crypto winter.
Now, four years later, will history repeat itself?
No hibernation, it’s time to build
Before comparing the current market situation with 2018, it is necessary to understand how the blockchain industry got to its current state.
The last cryptocurrency winter was a critical period for the rapid development of the blockchain ecosystem,The foundation of the industry as we know it today was laid during this period.
Despite the downward trend in the market at the time, leading projects also continued to work on building and optimizing their products. Lightning networks like ETH and BTC have achieved important milestones.Axie Infinity, ETHLend Projects such as Aave (now known as Aave) were also launched during that time when interest was scarce.
After 18 months of constant struggle,The cryptocurrency industry is starting to show signs of recovery.There has been renewed interest in the space and prices have started to soar. However, it has also pressed the pause button on the recovery of the cryptocurrency market as the Covid-19 pandemic has affected almost all industries.
In March 2020, with the outbreak of the new crown epidemic, various countries resorted to blockade measures, interrupting the global supply chain, causing major shocks in the global financial market. Bitcoin prices flashed nearly 50% in one day, and the S&P 500 fell 23% in two weeks.
Despite the complexity,But there are several verticals that take advantage of this market, the prices of tech stocks such as Amazon, Netflix, Zoom and Peloton soared. Likewise, the Dapp landscape is starting to take shape as major projects announce their improved products.
The summer of DeFi in 2020 saw a plethora of projects demonstrating the potential of decentralized finance. Curve, MakerDAO, Uniswap, PancakeSwap, and a handful of other DeFi projects paved the way for a multi-billion market, with many projects named after food and animals,The narrative of the Dapp industry has completely changed.
At the same time, the United States has been printing a lot of money, and the amount of money printing in just two years is the same as in the past few decades. It has injected water into the market, hoping to stimulate consumption to drive the economy, so that retail and institutional investors have turned their attention to the cryptocurrency market.
On October 10, 2020, the price of bitcoin surged 120% from its March lows, surpassing $12,000 for the first time since early 2018.At this time, people’s interest in the blockchain industry has returned.Adoption, consumer confidence, and invested capital are all on the rise, fueling the start of the next bull market. In just 6 months, the price of Bitcoin has risen by 134%.
Three major sectors to fuel the 2021 bull market
By 2021, the crypto winter is a distant memory. The bull market train rolled on, Bitcoin soared to $60,000, and the cryptocurrency market value topped $2 trillion for the first time in April of that year. Bitcoin and Ethereum are still the top two cryptocurrencies, BNB, USDT, DOT, ADA, UNI and LINK squeezed into the top ten cryptocurrencies, showing a new face of the cryptocurrency industry.
At this point, the Dapp field begins to harvest the seeds sown in the winter two years ago. The three main categories of the industry – DeFi, NFTs and GameFi , showing exponential growth for most of 2021, attracting millions of new users and billions of dollars in investment. Web3 paradigms such as multi-chain interoperability and Play-to-earn are on full display.
For example, in November of last year, DeFi protocols locked more than $200 billion in assets in smart contracts. The multi-chain model has helped the likes of Polygon and Avalanche become dominant projects in the DeFi ecosystem, with billions of dollars worth of assets locked up.
Then the NFT craze broke out, which generated more than $22 billion in transaction volume last year. Meanwhile, the top 100 most valuable NFTs on Ethereum have a market cap of $16.7 billion. Artists like Beeple, Pak, and Fewocious brought NFTs to the mainstream stage, and collectibles like CryptoPunks and BAYC became a kind ofcultural phenomenon, attracting celebrities and brands into the space. The potential of this blockchain use case is revealed as NFTs enable ownership and authentication.
Similar to NFTs, blockchain-based games will grow exponentially during 2021. Games like Axie Infinity, Upland, and Alien Worlds employ cryptocurrencies and NFTs to compensate their players, creating new revenue streams. The popularity of such games, especially in emerging economies, gave birth to the concept of Play-to-earn.
With Facebook’s rebranding, a new hype cycle has been created, a narrative around the “metaverse.”
Cryptocurrencies and NFTs associated with the Metaverse have experienced significant demand growth, leading to fairly high valuations. In Q4 2021, Metaverse-related Dapps generated over $330 million in NFT transaction volume and over 50,000 unique traders, VCs and other investors poured into blockchain-based metaverse and gaming projects record funding.
Last November, the blockchain industry hit a new peak, with Bitcoin reaching $69,000, a 360% increase in a year, and Ethereum and most cryptocurrencies peaking in the same month. Cryptocurrency market cap surpasses $2.8 trillion after Meta’s announcement,There is optimism across the industry.
complex macro situation
Time to 2022, industryThe status quo is much better than it was four years ago.
Hundreds of applications spanning multiple blockchain ecosystems attract 2.5 millionan active wallet; investors are also in a completely different situation,Institutional and corporate investors now dominate the cryptocurrency space; The popularity of cryptocurrency derivatives, the cumulative amount of cryptocurrency assets under management (AUM) is close to 60 billion US dollars; At the same time, VCs and private investors have invested more than 30 billion US dollars in blockchain projects, one third of which is used in games and the Metaverse Project to help them build the foundation of the Web3 Metaverse.
From a macro perspective, things are different now than they were in 2018.The negative impact of the Ukrainian-Russian war has brought serious challenges to global markets, and not long ago, the Federal Reserve (FED) raised interest rates by 0.5% for the first time in two years, confirming the suspicion at the beginning of the year that the Fed was about to raise interest rates in response to rising inflation.
also,The money printing boom is starting to have an impact.With the S&P 500 having its worst start since World War II and U.S. inflation at levels not seen in nearly 50 years, these macroeconomic factors are taking the market into what appears to be a recession.
Macroeconomic conditions have thwarted a bull trend fueled by the metaverse, and despite the industry’s profound evolution over the past four years, Bitcoin has lost 55% since its all-time high in November,And the Terra event added more pressure to the cryptocurrency market, which was experiencing a macroeconomic recession for the first time.
Is Crypto Winter Coming?
However, compared to the crypto winter of 2018, the market conditions we are seeing now are markedly different.
First, the blockchain industry has gone from a small group of isolated networks toA series of interconnected ecosystems, attracting millions of daily users. Three main categories – DeFi, NFTs, and GameFi flourished into multi-billion dollar segments.
Likewise, the situation of investors has changed from a large number of retail investors toLarger institutions and businesses with more economic power. Awareness of this space is higher than ever, with cryptocurrency company sponsorships seen in almost every major sport, billboards for Web3 products in multiple cities around the world, and Bitcoin may It has become a store of value for countries such as Venezuela and Argentina that are facing hyperinflation.
The same is true for NFTs.This type of digital asset is decoupling from the stock and cryptocurrency marketshas proven to be one of the most resilient assets in recent history, and like works of art, has historically been one of the most resilient investment vehicles.
A Web3 brand built on the cutting edge of the Metaverse, showing theendogenous growth. Web3 brands like Yuga Labs, The Sandbox, and RTFKT have partnered with numerous retail giants, including Adidas, Nike, HSBC, Warner Bros., and more. Many professionals are flowing into the blockchain world from leading Web2 projects.
Although the blockchain industry has become important, challenges remain. The collapse of Terra sent the sector bottoming out, and with the exception of DAI and a few other stablecoins, many stablecoins, including USDT, struggled to maintain prices during periods of high volatility.Trust in the entire algorithmic stablecoin sector may deter smart investors from weak DeFi so safety and regulations are topics that need attention as soon as possible.
In addition to these inherent challenges of blockchain,Another burden comes from the record high correlation between the stock and cryptocurrency markets.As mentioned, capital markets have had their worst start since the 1940s, and high-flying tech stocks like Netflix, Facebook, Roku, Wix, and Robinhood have fallen sharply. With the possibility of a recession becoming more and more likely, the capital market does not look optimistic in the short term.
So comparing 2018 to now, despite the impressive maturity of the cryptocurrency industry and the accelerated expansion of the Web3 community,But crypto winter may well have arrived.
The macroeconomic situation, coupled with the collapse of Terra, has made things worse for the cryptocurrency market, which has entered a correction phase. However, due to the level of popularity,Interest in the industry shouldn’t drop as sharply as it did in 2018.
As a digital asset with unique economic attributes, there is still demand for Bitcoin and other cryptocurrencies. Meanwhile, adoption by businesses and governments will force lawmakers to work on policies to regulate regulated digital assets.
However, we need to take into account that the cryptocurrency market is cyclical. For any industry,A cycle of consolidation and capitulation is healthy, and it creates financial stability.To quote Musk: “A recession is not necessarily a bad thing. I’ve been through it a few times. What tends to happen is that if you have a boom that lasts too long, it leads to misallocation of capital and starts throwing money at fools. “
To newcomers, the crypto winter feels like a bubble burst, but that’s not the case. The blockchain industry recovers every time it experiences a cold winter.Although it is about to experience its first major environmental recession, the maturity shown by multiple segments has enabled the cryptocurrency field to stand on the sidelines.A vantage point against a prolonged bear market.
Now, the main question is, how long until spring?
(The above content is excerpted and reprinted with the authorization of our partner MarsBit News, link to the original text | Source: Block Impression)
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