Since crypto’s recent bull run began, it has been plagued by scams, frauds, and other disappointments.
- NFTs copied, pasted, and illegally resold.
- Pump and dump schemes.
- Collapsing stablecoins and funds.
- False Prophets.
- Fake accounts.
- Cryptocurrency bros.
- Users playing super boring games to generate crypto earnings.
- Get quick rich schemes.
The list goes on.
And so, more negative headlines have been written about the crypto space than positive ones because whenever there is money to be made, there are scammers and grifters. This space’s once-optimistic notions and ideas have been swept away into an icy winter due to political uncertainty, inflation, and the growing cost of living concerns. Or perhaps those trying to get rich quick have less money to “gamble” with?
That seems to have changed since the market crash pushed most investors away. In the past, investors valued Decentraland at a billion dollars. Nowadays, there are allegedly fewer than 10 daily active users. Like Openseas last month, the NFT marketplace generated only $9 million in revenue, down from over $300 million per month.
Not to mention fintech layoffs; as of late October, more than 52,000 workers in the U.S. tech sector have been laid off in mass job cuts so far in 2022, according to Crunchbase News, and this does not even take into consideration the numbers worldwide.
However, others think it’s a good thing since games may be forced to become entertaining; NFTs will be traded with those who actually appreciate the art (and other forms of creation). There will be much more pressure on blockchains to show a good use case. In other words, those seeking wealth and nothing else will have to disappear (if they haven’t already). In this article, we speak to two experts in the DeFi space about this and ask them, is the crypto winter a good thing?
Katie Evans, Global Head of PR and Communications at Swarm Markets, comments:
Katie Evans believes that for all the hyperbole of a crypto ‘winter,’ the mechanical process underway in the sector isn’t vastly different from what is happening in the traditional financial equity and tech stock realm.
“Interest rates are going up, and this is flushing out crypto projects that aren’t sufficiently financially resilient while draining away cheap money and investor cash. This is a critical moment for those projects that are financially resilient. Think about the Dotcom boom – the companies forged in that time became today’s tech giants.”
Indeed the correlation between stocks and crypto has increased over time as more institutional investors have invested in crypto.
According to the IMF, cryptocurrencies such as bitcoin and ether were unlikely to be correlated with major stock indexes before the pandemic.
The idea was that they helped diversify risk and helped offset swings in other asset classes. This changed, however, after the extraordinary central bank crises of early 2020. Global financial conditions have been easy, and investors have been more willing to take risks, resulting in a surge in cryptocurrency prices and U.S. stocks.
Cryptocurrency and equity markets are becoming increasingly interconnected, which allows shocks to be transmitted and destabilize financial markets through co-movement and spillovers.
While this is the case, Evans sees this as an optimistic period, especially when discussing regulators because they can capitalize on the landscape.
“The so-called crypto winter is beneficial for regulators. It allows lawmakers to breathe and cooperate with industry to form considered regulatory frameworks. This is a more conducive landscape than creating regulatory structures resulting from knee-jerk reactions to a hot market running away from them.”
Indeed, regulations tailored to the primary uses of crypto assets could be included in such a framework, providing precise requirements for regulated financial institutions relating to their engagement and exposure to such assets.
Evans continues, “interestingly, the bear market is providing impetus to areas of crypto that still offer investors’ returns, where other areas of traditional finance can not. For example, the rise of staking has become more prolific to earn passive income, despite the market downturn. Staking rewards are paid to those who invest in developing a layer one blockchain network. It is this type of value investing that investors look for when markets turn bearish.”
Lastly, Evans touched on NFTs. From April 15, 2021, to Oct. 15, 2022, Statista recorded significant fluctuations in the value of sales involving NFTs in the art segment. A total of $78 million was generated by NFT sales on the ethereum, ronin, and flow blockchains during the 30 days before April 15, 2021. In the 30 days ending Oct. 15, 2022, the aggregated sales value was roughly $24.7 million.
Evans takes a long-term view, which she sees as positive for weeding out unworthy projects.
“The focus on liquidity issues in the market as it exists is missing the wood for the trees. The market for crypto ideas such as NFTs and others will be very different in the long term, and this is no bad thing. The money that flows out now flows out for projects that aren’t withstanding their use cases. But different, better use cases, such as the tokenization of real-world financial assets, are coming,” she said.
Filippo Chisari, Web3 strategic advisor, comments:
“It is a positive thing since it is weeding out all those in it for the wrong reasons, the false prophets, and those who are not ‘building,” explains Filippo Chisari.
Rather than calling it crypto winter, Chisari prefers the idea that it should be called a ‘Web3 winter.’
“The public’s perception of the value and utility of cryptocurrencies, NFTs, and the metaverse is at an all-time low. That is because blockchain, the underlying technology, is complex and has recently come to the public’s attention for the wrong reasons. As innovators ignited the spark in 2017, early adopters that followed saw this as an opportunity for a quick cash grab by attracting investors to new projects, then pulling out before actually building, thus leaving investors with nothing – AKA ‘rug-pulling.'”
Exact figures on crypto wallet ownership are not available, but it is estimated to be low compared to the global population.
The global user base of all cryptocurrencies increased by nearly 190% between 2018 and 2020, only to accelerate further in 2021, according to Statista.
The increase in demographics might have been caused by both a rise in the number of accounts and improvements in identification.
Furthermore, cryptocurrency adoption has continued as companies like Tesla and Mastercard announced their interest in cryptocurrency. And many other factors show that mainstream adoption is growing. Or as Chisari puts it: “As much as multiple news outlets are putting much effort into pushing negative headlines, the space is evolving positively by the day.”
Additionally, the evolution of social media, the push to decentralization, and the long-term goals of the ecosystem are considered indicators that the “Web3 winter” is positive.
“Drivers of public perception, such as social media giants and major brands, are shaping the space and recognizing the potential for a better socio-economic model that will affect finance, the world of work, and consumerism. Generation Z and Alpha are at the core of this transformation as Web3 natives. This evolution is bound to happen, whether for or against, as it represents the next phase in digital ownership, customer engagement, and brand loyalty,” Chisari said.
Chisari concludes with the same focus on cutting those who do not bring innovation, and like many others, this seems to be the main reason for an optimistic view of the crypto winter.
“This crypto winter (which I believe will last until Q22023) will weed out false prophets and all those who are not strictly building (in the broad sense of the term) toward this collectively positive future.”