Crypto winter is only going to get worse, says Tezos blockchain co-founder

The ongoing crypto winter is “only going to get worse” as the industry recalibrates to a higher-interest world, according to the co-founder of blockchain platform Tezos.

Asked about the fall in prices of many cryptoassets this year, Kathleen Breitman said: “A lot of this was inflated by cheap money, and a lot of this was supported in the first place, like VCs trying to pump.”

“There was a lot of easy money going into the system and I think it was artificially inflated by a number of different things, mainly valuations of these companies,” she told CNBC’s Karen Tso on Wednesday at the Web Summit conference in Lisbon, Portugal.

Breitman cited NFT marketplace OpenSea, where trading volume plunged from $2.9 billion in September 2021 to $349 million in September 2022, according to data from Dune Analytics.

“Obviously, it’s a phenomenon that has kind of ebbed and flowed in a lot of these markets, but in the meantime, they’re worth $13 billion,” Breitman said.

“So I think a lot of cheap money went in, valuations went super high, you had people scrambling to make those valuations justified in some form, usually through cheap tactics like yield farming, and now that the easy money is gone, all that’s left is for us to get together, I hope,” she continued.

On whether the pause in Federal Reserve rate hikes that economists expect next year could push crypto markets higher, Breitman said there will still be a shift in crypto and tech values ​​based on expected benefits for actual user growth; and without the ability to continue using “cheap tactics” to get “easy” users in the door.

“Crypto has not been evaluated by that metric, nor has technology for the last 10 years that we’ve had low interest rates,” Breitman told CNBC. “It remains to be seen, but basically I think what you’ll find is the things that are useful are going to thrive.”

“But that’s the small minority of crypto applications, whether people want to admit it or not.”

Tezos, which Breitman also co-founded, is a smart contract platform, like the better-known Ethereum, but which allows token holders to vote on changes to the platform before they are adopted every few months.

Use of the network has surged in 2021, Breitman said, driven by demand from the art world, where digital artists imprint art on the blockchain and trade it. This use provides one of the only sources of organic growth in the industry more broadly, she said.

The notion of the end of the era of easy money in crypto is one that analysts have debated in recent months amid the downturn.

Some industry figures believe the recent relative price stabilization of assets such as bitcoinwhich has traded between $18,000 and $25,000 for the past four months after experiencing massive volatility, is positive for the industry.

Antoni Trenchev, co-founder of cryptolender Nexo, previously told CNBC bitcoin’s performance was “a strong sign that the digital asset market has matured and is becoming less fragmented.”

Correction: The text and headline of this story have been updated to accurately describe Kathleen Breitman’s job title.