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Braving the Bear Market
Why we're still bullish overall on crypto and NFTs
Forget crypto winter, some are calling the current downtrend a crypto “ice age.” Bitcoin fell this month to its lowest point since December 2020, and with it the meteoric rise of cryptocurrencies, NFTs and DeFi appeared to have come to an abrupt and painful end. But it’s not the first time that the market has experienced a serious correction, and it won’t be the last. Like the traditional stock and property markets, cryptocurrency is prone to cycles of boom and bust, and the conditions of the traditional markets have a bigger influence on crypto than some might think.
With record-high levels of inflation and a volatile war happening on the European Union’s front doorstep, pressure on risk-based assets has been steadily mounting in the first half of 2022. The crypto crash in particular has been compounded by the multibillion-dollar collapse of the Terra stablecoin, which exposed weaknesses within the crypto industry at large. David Gokhshtein of Gokhshtein Media, a cryptocurrency and blockchain news outlet, believes the crash of Terra Luna's ecosystem dragged Bitcoin and the overall crypto market down further than it might otherwise have fallen. And it’s not an isolated issue. The benchmark S&P 500 index also hit a new low point for 2022, falling nearly 20% in May from its record highs in January. However, despite the panic, this dip still comes nowhere near the 48% drop that the S&P experienced during the 2008 financial crisis, or the 2018 Bitcoin crash, when the project lost 65% of its value within the space of a month.
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And what about NFTs? Although they’re generally conflated with the cryptocurrency market more broadly, NFTs appear to be decoupling from the stock and crypto markets, proving to be one of the most resilient assets in recent history. This can be partially explained by the fact that they’re more similar to art and other physical assets, which historically have been some of the most reliable and resistant investment vehicles during times of volatility.
Despite the fear, uncertainty and doubt, this is not the end of crypto and NFTs - far from it. In reality, the fact that the crypto and stock markets are more closely correlated than ever is a sign that the industry is simply becoming more mainstream and widely adopted. To put it in perspective, the total market capitalization of cryptocurrencies has exploded from $80.5 billion in July 2017 to over $1 trillion in July 2022.
And it’s not just the devs and degens who are in it for the long haul. The past two years have seen corporate giants like Twitter, Facebook and Instagram begin to enter the space, as well as countless brands from the sport, fashion, music and lifestyle industries. Meta CEO Mark Zuckerberg recently announced that his organization will be rolling out more ways for creators to make money on its platforms, and helping them build for the metaverse. In a Facebook post that read somewhat like a Twitter thread, Zuckerberg laid out plans for more digital collectibles features, including NFTs on Facebook and in Instagram stories, plus a raft of monetization options. With companies like Meta and Twitter staking their claim over swathes of the metaverse and Web 3, there can be no doubt that the industry is here to stay, and that the utility is only going to grow.
Take it from the Experts
Vitalik Buterin, founder of Ethereum: “The down periods are certainly challenging, though they are also often the periods where the most meaningful projects get nurtured and built.”
Mark Cuban, billionaire investor: “Disruptive applications and technology released during a bear market, whether stocks or crypto or any business, will always find a market and succeed.”
Elon Musk, founder and CEO of SpaceX, Tesla Motors, The Boring Company, Neruralink (and possibly soon to be Twitter): “Recessions are not necessarily a bad thing. I’ve been through a few of them. And what tends to happen is if you have a boom that goes on too long, you get a misallocation of capital. It starts raining money on fools.”
The general consensus is that bear markets are a time for building, researching, learning and connecting. It’s arguably the best time to enter the space, when opportunities for growth abound and the authenticity and resilience of projects will be tested and proven. The crypto winter is a period that should be viewed as an opportunity to elevate the market: empty projects will fall flat during harsh times, while successful projects will continue building.
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