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Is crypto dead... again?

Posted: 01 June 2022

Is crypto dead... again?

Recent crash in cryptocurrency prices has wiped away more than $300 billion in value. Luna – one of crypto’s fastest growing blockchains – collapsed, what shook the entire market and led many to cast doubt on crypto assets. This breakdown forced investors to think a bit deeper while foreseen “crypto winter” provides a great time to discuss what market participants should presently focus on. It is also an excellent opportunity to evaluate project’s due diligence processes, as well as future investment strategies.

History doesn’t repeat itself... but it very much rhymes

Five resets have already hit the crypto industry. In 2014 Mt Gox, the first and only at that time bitcoin exchange, imploded in the largest bitcoin hack to date (740k bitcoins, then worth close to $500 million). Two years later The DAO, meant to operate like a venture capital fund for the crypto and decentralized space, was hacked and $60 million of ether was stolen from the Ethereum blockchain, on which the project was built. Then, at the beginning of 2018 the ICO bubble popped, what was later proclaimed as the coffin nail for cryptocurrencies. It started a year-long decline, wiping out 60% of the crypto market.

The latest market meltdown took place in 2020 when the coronavirus pandemic crushed global markets, thus bitcoin also fell – by 37% in only one day. Not much later, China mining ban also contributed to the crypto market downturn.

At the moment we are experiencing the fifth crash, started in May 2022. Due to increase of interest rates and tightening of global monetary policies, supply chain issues as well as war in Ukraine, worldwide economy experienced a powerful stress-test. On top of that, investors perception of crypto as a risk-on asset, together with UST depegging, Luna crash was labelled as a perfect storm of greed and immature technology. And perhaps it may be the most important one so far.

When it falls, it grows

In the nascent market for cryptocurrencies severe downfalls have become almost truism. However brutal for projects, all those collapses were not definitive. In the long term each reset not only led to the increase of the total market capitalization, they also cleared the way for rapid innovation and more certainty. Kraken and Coinbase – two biggest crypto exchanges in the U.S. – were developed just after Mt. Gox’s hack, as people needed trustworthy places to buy bitcoin. The significant growth of DeFi sector and Security Token Offerings happened following the ICO crash. After covid plunge as well as monetary interventions, the rising interest in crypto is shown by whales like Tesla, MicroStrategy, Grayscale and many other institutional investors. Finally, countries – as the first El Salvador and Central African Republic – declared bitcoin a legal tender, paving the way for other nations.

Over the long term every crypto crash has generated steady growth of new ideas, projects, code, legal regulations and startups — the fundamental drivers of innovations.

Take it as it goes

For the global blockchain community the rolling crisis simply means another stage to go. What is extremely positive, that the whole ecosystem is getting safer and more mature through subsequent updates and legal guidelines. In addition, more and more brilliant people including Web2 pioneers like Jack Dorsey join the space. The great evidence for the industry expansion is bitcoin network hashrate rise (new ATH on 16th of May 2022).

Senior Vice President of Ripple, the leading provider of crypto solutions for businesses, lately shared some thoughts on the state of the market. The executive said: “This has happened before. It's going to happen again. And I think for us, we’re building into it. And I think it’s an opportunity”.

One should bear in mind, that price of an asset does not necessarily always equal its market value. Price is what market determines at a certain moment, but value is based on essential fundamentals and features that requires much deeper understanding of a particular asset.

Thus, blockchain technology and crypto is here to stay. It has become anti-fragile – the toughest stress tests it experiences, the better projects determine the overall industry development direction.