As the crypto markets experience a sharp sell-off, it is pleasing to note that not everyone is suffering from extreme pessimism. In an opinion piece for Coindesk, Michael J. Casey, a respected commentator on the market, argues that this is nothing like the events of 2018, despite the slump.
Certainly, 2021 was a boom year that “generated overblown prices” for tokens, whether fungible or non-fungible. However, Casey points out something very important: “In many ways the building and problem solving that followed the 2018 meltdown has served us well. It meant the speculation behind the most recent boom was built on a more established foundation than in 2017.” And while crypto is not yet anywhere near being mainstream, it’s an awful lot closer to that goal than it was in 2017-18. There is a feeling that it is here to stay, and “that’s why this crypto winter feels less brutal” Casey says.
He suggests there are six reasons to say, “this time is different,” which may also give cause for cautious optimism.
- Layer 2 scaling is a reality
From the Lightning Network to DeFi apps, cryptographic advances have over the past three years gone from concept to deployment. This means we’re closer than ever to seeing the scalability that will bring mainstream adoption.
- The success of permissionless projects
Recent crypto success stories are concentrated among permissionless projects open to any participants. DeFi, non-fungible tokens (NFTs) and decentralized autonomous organizations (DAOs) are where money is being made. As Casey says, “Users are finding value in blockchain technology’s most disruptive, paradigm-changing promises rather than in incremental adjustments to existing business models.”
- Institutions and corporates are in
Thousands of mainstream firms are experimenting with NFTs and social tokens, especially those in entertainment, fashion, media and gaming. Plus, the engagement in crypto among hedge funds, family offices and even pension funds has surged last year, and even if they have sold off some of their crypto holdings recently, “those investments now stand as a base of established infrastructure for handling future transactions.” In other words, institutions etc are not leaving crypto.
- Regulations equal normalisation
Whilst regulations may hamper innovation, they are also a framework for normalizing the industry and for making the general public feel more comfortable with it.
- Don’t blame crypto
In 2017, ICOs fuelled investor mania. This year it is quite different. Indeed, it is the extra fiat money available that prompted the 2021 boom. That surfeit of dollars, euros and yen flowed into risk assets: stocks, commodities, real estate, fine art and, significantly, cryptocurrencies. As Casey says, “Now we’re all paying the price for that as an inevitable inflation problem is prompting the U.S. Federal Reserve to remove the punch bowl.”
- Let it settle
The market will eventually settle. Anyone who has been in crypto for a few years knows this will happen. Casey says, “I think the excessive part of the crypto price rally – the part that took Bitcoin from $30,000 to $65,000 but not that which drove it from $10,000 to $30,000 – was perhaps due to external factors. Once we get to the other side, we will be able to see if future price advances are driven by legitimate crypto-only factors rather than “the risk-on/risk-off whims of a global financial system addicted to central bank largesse.”