The crypto market has already taken lots of hits in 2022. Heavy hits came with the collapse of Terra, a majorly touted crypto that at one point was one of the most valuable cryptos by market cap. Also, the bankruptcies of crypto companies like Voyager Digital and Three Arrows Capital over the summer affected the crypto market.
The bankruptcy of FTX was maybe the biggest blow of them all, with the collapse of the high-profile, seemingly reputable, crypto exchange dealing the industry’s credibility a black eye. Nonetheless, it is crucial to remember that these are individual companies and entities, not crypto itself.
Crypto is down, but it is not out – here are some of the top reasons for long-term hope in the midst of the crypto bear market.
Crypto Eliminates Central Authorities And Intermediaries
A worker could send funds to their family back home in another nation using Bitcoin (BTC) or an artist who decided to sell artwork as a non-fungible token (NFT) on the Ethereum blockchain. In both incidents, crypto is making a difference for these people since it is powering peer-to-peer payments and getting rid of the need for expensive intermediaries.
The worker can transfer more of their money to their family since they can now avoid traditional remittance services, which mostly charge huge chunks of fees, and the artist does not need to pay any commission to a broker or gallery. This enables them to keep more of the money from their work. Notably, the decentralized, peer-to-peer nature of crypto makes it quite a unique, egalitarian financial network for people around the world.
While the FTX saga and the implosions of several other centralized finance services are understandably getting used as examples of why crypto is not a trustworthy asset class, it needs to be noted that FTX itself was just an intermediary within the crypto sector.
Interestingly, crypto and decentralized finance (DeFi) enables users to sell, buy, send, and receive crypto without needing to ever use any centralized exchange like FTX. Cryptos like Bitcoin are perfectly designed to be trustless since they are operated by a decentralized network of miners globally, avoiding the need to trust any central authority behind them when using the crypto.
Thus, a crypto investor can utilize a decentralized exchange like Uniswap, which is primarily governed by automated smart contracts (instead of a person or a company in charge) to sell and buy crypto. Crypto investors and users can also hold their investments in a Self-custody wallet or even store their holdings offline altogether in a hardware wallet.
The crypto space certainly has some problems to work through. Nonetheless, crypto’s unique role as a trustless, peer-to-peer financial network that eliminates the need for intermediaries or centralized authorities gives it a distinct appeal to users throughout the world.
Regulatory Clarity
Although the crypto market is currently dealing with the negative effects of the collapse of the FTX exchange, and most recently, lender BlockFi filed for bankruptcy protection, there is still some hope for the long-term proponents and believers.
The quick surge and even rapid fall of some of the sector’s most important operators might speed up the introduction of one clear regulatory infrastructure for cryptos, as opposed to the disparate governing entities handling things like they are trying to do now. Such a development would be a massive positive.
In the past several years, cryptos have operated in a regulatory grey area, flirting with strict laws, rules, and regulations that apply fully to other types of businesses. Furthermore, since major crypto companies have decided to settle in highly favorable jurisdictions, like Singapore or the Bahamas, it does not help when it comes to increasing trust in the sector.
Just look at Coinbase Global, the leading crypto exchange and brokerage in the United States. It remains outstanding since all its financial statements are audited and open for the public to see. In case more businesses had to play by such rules, the whole sector would be in a much better place since risks would not get any places to hind behind complexity.
One crypto analyst and investor commented:
“I’m optimistic that the U.S. will create proper regulations that will attract cryptocurrency projects that want to exude legitimacy and gain the trust of the public. And this will be a net benefit for the country, as the U.S. should lead the world when it comes to new developments in the crypto and blockchain space.”
Investment Keeps Coming Into The Sector
In only five years, the value of all cryptos, referred to as the total market cap, has more than doubled. In December 2017, crypto’s total market cap was around $315 billion. Despite the severe crypto winter and tumultuous year that has been 2022, during which the market lost 70% of its value, the total market cap of crypto is still above $860 billion. This represents an increase of 175% in 5 years.
Although the market has lost 70% of its value, a new study indicates that the burgeoning asset class is attracting investors and has already outpaced other competitive industries like biotech and fintech by a long shot. Based on the latest Emerging Tech Indicator from PitchBook, a firm that specializes in data research in the financial markets, crypto led the pack and it was not even close.
In the past 12 months, investors have poured a staggering $6.5 billion into the industry. The closest competitor was the fintech industry with around $2.7 billion.
PitchBook discovered that a huge chunk of that money flowing into crypto is being used to fund new projects related to Web3 and decentralized finance (DeFi). DeFi uses cryptos and blockchains to disrupt the status quo in the traditional finance industry which has been majorly dominated by centralized organizations including banks.
Web3 seems ready to bring decentralization to the internet and promote a permissionless, secure, and interoperable environment that is not controlled by any privacy-invading tech behemoths.
According to the trajectory of the crypto asset class market cap and huge amounts of capital still flowing in to develop new blockchain-based applications, it seems the long-term potential that crypto has is increasingly difficult to ignore.
This technology could easily revolutionize the way banks do their day-to-day operations or how users interact on the internet. The past year might have been severely brutal, but cryptocurrency’s best days seemingly remain ahead.
