It’s been terrible there.
Bitcoin is down more than 8% this week and is down almost 50% from its highest level in the past year. The situation is no better for Ethereum, down 5% during the week, while the latest coins like Solana (SOL), Terra (LUNA), and Avalanche (AVAX) are down more than 10% this week. The situation has long not looked bad, and will only get worse before it gets better.
But don’t worry. Like the meme of a dog in a bowler hat sitting in a house on fire: This is good.
Before we understand why it’s (usually) good, let’s look at what caused crypto to melt in the first place.
The main cause is the global macroeconomics. Governments around the world have been hit by inflation rates that haven’t seen in 40 years, and central banks are finally taking measures — such as jacking interest rates and lowering their balance sheets — to fix this. Unfortunately, this means taking the punchbowl of cheap money that has plagued the stock price and real estate for decades.
The result is an elimination in stocks and crypto (Bitcoin is more common closely related to the Nasdaq than now) and fear among investors. Meanwhile, other global events – from the war in Ukraine to the new Covid lockout in China – boosted sales and added to discomfort. In this situation, is it any surprise that people are flushing their Shiba Inu tokens? Many crypto addicts, and Bitcoiners in particular, like to believe that blockchains will supply alternative financial realities when the world goes to hell, but it is clear that is not (yet) the case. Crypto is as vulnerable to macroeconomic shocks as anything else.
Meanwhile, the crypto industry itself has become a bubble waiting to pop. Choose your example-from a useless Layer 1 chain surplus to a fly-by-night NFT to Floyd Mayweather’s latest pump-and-dump. There is a lot of money being wasted in a stupid way. It doesn’t matter if there are enough “bigger idiots” out there to buy the junk, but when the music stops, it will look like the fall of the ICO in 2018.
We may be at that stage again now. Paradoxically, however, the current genocide we are witnessing should be one of optimism.
Since the birth of Bitcoin, the crypto industry has been marked by spectacular booms followed by painful crashes. If history repeats itself — and I’m sure it will — the coming downturn will be a healthy cleanup and revitalization for the industry.
That happened in 2013 when the price of Bitcoin accelerated to $ 1,200 for the first time, only to go down. It took years to reach that level again, but in the meantime, something extraordinary happened: a dedicated team put their heads together and created a series of innovations that transformed the industry. When the next boom launched in 2016, crypto had gone from just Bitcoin and some altcoins like Litecoin and XRP to include smart contracts, utility tokens, and multi-chain futures.
The same thing happened after the bust of 2018. When crypto comes back in 2021, the technology has changed dramatically. A series of excellent NFT platforms have surpassed the primitive CryptoKitties of the previous boom, real DAO, and the entire industry pipeline to become more sophisticated.
It will happen again. As in the past, dilettantes and hustlers will move on to some more shiny things, while those who believe in real crypto will continue to lay the groundwork for the next era of Web3.
It’s hard to predict exactly what this next era will look like, but a good bet is that it will feature low gas fees, easy to use Layer 2 options, and NFTs moving into the core of the music and entertainment industry. It’s an exciting future to imagine – if you have the stomach to handle more Crypto Winter.
This Roberts in Cryptoweekend column from Decrypt Editor-in-Chief Daniel Roberts and Decrypt Executive Editor Jeff John Roberts. Sign up for Decrypt Debrief email newsletter to receive in your inbox every Friday. And read last weekend’s column: Sam Bankman-Fried Bahamian Honeymoon Phase.
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