Could this Bear Market be Good for Crypto?
It is undeniable that the cryptocurrency industry is deep into a bear market, as top projects are down over 60% from their all-time highs reached around Winter 2021. Even though new investors may be spooked by this price activity, veterans in the space are not worried and are expecting the market to recover stronger than ever.
The cryptocurrency market reached new all-time highs in 2021, both in terms of market valuations and general awareness. Before the previous bull market of 2020–2021, most people did not have a good understanding of what cryptocurrencies were or had only heard of Bitcoin. The explosion of popularity of NFTs, while not ideal in terms of blockchains being used for a real use case, made almost every American household aware of blockchain and one of their biggest features. This, along with several hundreds of million, if not billions, of dollars spent on marketing means that cryptocurrencies have become legitimized in the eyes of the average person, regardless of whether or not they truly understand the purpose of them.
This most recent crash has tested this perception. As Ethereum and Bitcoin face a 15% decrease on the day, cryptocurrencies appear to be a fad that had their 15 minutes of fame and are now going to fall into obscurity. While this is an easy narrative to believe, especially with how many billions of dollars are disappearing from the market, it is far from the truth.
This weekend, over 15,000 of the world’s leading experts on cryptocurrency came together at Consensus 2022 in Austin, Texas. At the event, there were hundreds of talks about all sorts of different applications, potentials, and opportunities for blockchain and cryptocurrency. Almost every well-regarded project also had a booth with representatives excited to talk about the future of their cryptocurrencies and their future developments.
One of the biggest takeaways from this event, which I attended, was the lack of worry about cryptocurrency prices. Builders and developers in the space will not be changing any of their work solely because of a change in prices, and they still plan to create the world-changing technologies with the same fundamental value as they were in the bull market. In fact, some developers I spoke with, who wished to remain anonymous, were excited about the opportunity of the bear market for several reasons. First, there would be massive discounts on top projects that they believe deserve higher valuations. Second, and arguably more important, a bear market will kill all of the scammy or untrustworthy projects and only leave the best projects afloat. This also happened in 2018, and lots of projects that were once in the top 50 now barely break the top 500.
The failure of bad projects is already beginning to happen, as we can see with the death spiral of Terra and UST. Before it collapsed, UST was one of the world’s biggest stablecoins with a valuation of over $18 billion. Had the crash never happened, UST and Terra would continue growing and becoming more integral in the market. Eventually, the project would have had to fail, so having it fail now as opposed to in several years when it could have been worth hundreds of billions is a blessing in disguise.
For new cryptocurrency investors, it is easy to be intimidated by the current market conditions and worry about the future of crypto. However, for the tens of thousands of developers and builders helping to create the next generation of the internet, this bear market is a natural part of the process that will help the overall health of the industry. Knowing this may not make it any easier to lose lots of money overnight, but may inspire confidence in the market’s future recovery.
By Lincoln Murr