Crypto crash – Is the bottom in and what will the future of crypto hold?
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Over the past half year or so, the crypto market has found itself gripped by bearish pressure, with the total capitalization of this rapidly maturing industry dropping from $3 trillion to its current value of $900 billion.
It should also be mentioned that each top 10 digital asset including Bitcoin, Ethereum, XRP, Solana and Cardano in the market today is currently down more than 70% from its all-time high.
The prevailing sentiment is not only relegated to the crypto industry. Indeed, markets across the board including shares and commodities is also down by large margins. This is because the Federal Reserve, along with several other central banks around the world, have raised interest rates to keep rising inflation in check.
Despite their best efforts, the global economy appears to be heading for a major recession, causing investors to move away from high-risk assets (such as crypto, tech stocks, etc.) to more traditional stores of value.
To this point, so far this year, the S&P 500 has fallen over 20%, while other major indexes such as the Dow Jones Industrial Average and the Nasdaq Composite have fallen 15% and 30%. Similar scenes have also been seen across Europe, with Britain’s FTSE 250 index and Stoxx 600 losing 20% and 18% of their respective values, while Asia’s MSCI index is down 19%.
In addition, it is worth considering that just over a month ago the correlation between the crypto market and technology stocks rose to an all-time high, which suggests that more and more investors are starting to see digital currencies as risky assets.
From a macroeconomic perspective, investors would be wise to either trade the ongoing volatility or identify projects with strong fundamentals that can be scooped up at deep discounts.
DeFi is not dead
The crypto market’s aforementioned woes recently became significantly more pronounced after the fall of Terra, a one-time $40 billion project that was reduced to ashes after its associated algorithmic stablecoin (UST) lost its link to the US dollar, resulting in itself. as well as the sister currency (LUNAC) crashed to penny values almost overnight.
Terra’s destruction didn’t just send shockwaves across the global crypto landscape t also resulted in investors in various other markets losing faith in digital assets.
This deep mood was further soured when many prominent crypto lending institutions such as Celcius, Vauld and Babel Finance revealed in the past month that they had frozen customer withdrawals without giving customers any advance indication.
This called into question the transparency aspect of the crypto market since these ‘decentralized’ projects were able to prevent investors from accessing their funds.
Finally, many institutional players linked to the crypto market have also seen red recently. For example, Three Arrows Capital, a digital hedge fund with over $10 billion in assets under management (AUM) at one point, recently filed for bankruptcy amid falling prices.
A common thread, however, has been the failure of CeFi institutions. Their custody of private investors’ assets means that during insolvency proceedings, retail investors may not be made whole if any at all.
This will likely result in one of two things happening in the next cycle an increasing focus on non-custodial, DeFi platforms or CeFi platforms held to a higher regulatory standard.
Lots of layoffs
In addition to many popular cryptocurrencies being met with extreme bearish pressure, another clear indicator of an ongoing crypto winter is that various firms operating within this market have had to lay off large parts of their workforce.
Last month, cryptocurrency exchange Gemini ruled by the Winklevoss twins revealed that the ongoing bear market had forced them to say adieu to about 10% of their staff.
Similarly, Latin America’s second largest exchange Bitso announced that it is laying off 80 of its 700 full-time employees a move that was mirrored by Buenbit, Argentina’s leading cryptocurrency investment platform. The company has reportedly laid off 45% of its workforce, bringing its active employee pool from 180 to just 100 workers.
2TM, the parent company behind Latin American giant Mercado Bitcoin, also let go 12% of its 750-person team, while Coinbase announced that the prevailing crypto winter had forced it to lower its hiring rate, as well as rethink its future. financial strategies.
Finally, crypto-friendly trading platform Robinhood fired nine percent of its workforce, while Rain Financial one of the Middle East’s most popular crypto exchanges laid off around 12 employees recently.
What will the future of crypto hold
Despite the current volatility, there is enough data to suggest that retail and institutional interest in crypto is high. For example, since the beginning of 2020, Bitcoin and its associated financial instruments have continued to witness a steady inflow of funds worth approximately $26.2 million.
Not only that, but data released by blockchain analytics firms Cryptoquant and Glassnode clearly show that investors have been “buying the dip” and piling up BTC and ETH at record speeds over the past couple of months.
Furthermore, the decentralized finance market (DeFi) has continued to gain a solid amount of mainstream traction despite all the recent scandals. This is best highlighted by the fact that over the past couple of years, the total capital locked up within this space has gone from a respectable $2.5 billion to its current valuation of over $75 billion.
Finally, speaking of innovation, a growing list of companies have continued to build, despite the market being weak.
In fact, people like HashWorks CEO Todd Esse are of the mindset that “bear markets are for building,” a sentiment shared by other prominent crypto personalities including Stack’s Munneb Ali, who believes that cryptowinters provide an ideal opportunity for developers to prove their mettle, while demonstrating their commitment to projects with strong fundamentals.
As the market continues to shed weak hands and bad players, it will be interesting to see how the future of this rapidly evolving space will yield new, more robust players.
Christophe is CEO and co-founder of Request Finance. His background as CFO in more traditional structures and his experience at Y Combinator allowed him to better understand the challenges posed by Web 3.0.
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Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making high-risk investments in Bitcoin, cryptocurrency or digital assets. Please note that your transfers and trades are at your own risk and any losses you incur are your responsibility. The Daily Hodl does not recommend the purchase or sale of cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
Featured image: Shutterstock/Yurchanka Siarhei
