Winter is coming for cryptocurrencies. But that's not necessarily bad news

Winter is coming for cryptocurrencies. But that's not necessarily bad news

"Luck favors the daring", says Matt Damon in the famous spot of (one of the leading cryptocurrency trading platforms) which aired for the first time in October 2021. Less than a year later we can say that that advertisement has aged very badly: compared to the highs reached last November, the entire cryptocurrency sector has collapsed by about 65% (from almost three trillion dollars to less than a thousand), has fired hundreds of people and Matt Damon ( along with the crypto world in general) has become South Park's latest target.

One need only look around to understand that, in this sector, the situation is grim. Shares of Coinbase (another trading exchange) have lost 78% of their value year-to-date, while the company announced the layoff of 18% of its workforce. Similar cuts have actually occurred similar to BlockFi and also Gemini (founded by the Winklevoss brothers, among the first institutional players to bet on this sector).

Investment firms such as Three Arrows have meanwhile filed for bankruptcy, failing to repay loans, while Ethereum-related mining companies also announced in June that their work was taking place at a loss. A situation that has led one of the most prestigious and objective newsletters dedicated to the sector - The Crypto Syllabus - to write that "the cryptomondo is devouring itself".

The collapse of bitcoin looms over El Salvador The country was the first to give cryptocurrency legal tender, in the wake of President Bukele's plans. Opposition to the measure and fears for the future of the local economy are now growing. The reasons for the collapse What happened? How did realities fall so suddenly that for the whole of 2020 and 2021 they experienced dizzying growth? If we want to identify the two main factors, we could highlight the huge speculative bubble that has engulfed a still immature sector such as that of the NFT, which entered into fibrillation starting from March 2021: when the bubble inevitably burst (-90% compared to September last), brought with it the whole (connected) world of cryptocurrencies.

The coup de grace, however, came when, also in this case following an excessive speculative frenzy, the world of DeFi began to give up: the decentralized finance that should "reinvent" the world of investments and of loans but which in reality is reproducing the most unscrupulous speculative mechanisms without any regulation, protection and safeguarding.

When sectors so poorly regulated, and which take the form of a financial far west, face sudden growth, it is inevitable that sooner or later the whole house of cards will collapse. It is enough for someone to decide that the time has come. This is exactly what happened with TerraLuna, the cryptocurrency-based lending platform - which at its peak had a market capitalization of $ 80 billion - which collapsed as savvy investors realized that stratospheric interest rates. interest were no longer sustainable by withdrawing their investments. The wave of mistrust has engulfed an already shaky sector after two years of euphoria, bringing the entire crypto sector to its lowest level since January 2021.

What Europe wants to do with cryptocurrencies Commission, Council and European Parliament aim to regulate bitcoin, crypto-asset and nft. However, the strategy targets the anonymity of transactions, causing some risks. Who said an end? Is it the end of cryptocurrencies? In reality, it is not said at all. From this point of view, the obituary recently made by the New York Times offers clear indications through the parallelism with the dot-com bubble that, in 2000, had overwhelmed the nascent internet sector. "Some experts have long argued that the exuberant growth of the past two years could not go on forever, comparing it to the dot-com boom of the late 1990s. At the time, dozens of dot-com companies went public during the hysteria surrounding the great promises of the internet, though few of them were making a profit. As trust evaporated in the early 2000s, many of these dot-coms went belly-up, leaving only the biggest ones - such as eBay, Amazon and Yahoo - standing. " a much more flattering parallelism than it might seem. At the time of the 2000 bubble, the Nasdaq had exceeded 4 thousand points: today it is worth 11 thousand after reaching 15 thousand points last October. In 2000, an Amazon stock was worth three dollars and after the dot-com bubble burst it had lost 90% of its value. Today it is worth 113 (+ 4000%).

In a nutshell, if the end of this speculative euphoria will serve to make a clean sweep of the weirdest realities and to bring out the ones with the most solid foundations from the deck, so be it: this is exactly what happened in 2000 with the first companies in Silicon Valley, then surrounded by immense skepticism and which then changed the world instead (for better or for worse). This may not necessarily happen in the cryptocurrency sector, but at the same time it would be foolish to rule it out on principle.

Will Binance Save Cryptocurrencies? The CEO of the largest exchange in the world talks about the crisis in the sector and the possibility of going to the rescue of companies in difficulty The bear market And this for two other reasons: first of all, enormous attention is paid to the collapse of cryptocurrencies (because , as always, he is more flashy than the others), but in reality it is the whole financial world that is falling after two excessive years of financial euphoria. Shares of the Nasdaq are down 25% year-to-date. In the same time frame, some of the most important Silicon Valley giants have suffered cryptocurrency-worthy collapses: Meta lost 50%, Amazon 30%, Netflix an impressive 66%. Even the old Dow Jones lost 14%. Our Ftse Mib lost as much as 27%.

Cryptocurrencies are increasingly volatile, but it would be absurd to isolate their collapse from what is happening throughout the financial sector. There is another element to take into consideration: for those who have been observing the cryptocurrency for some time, what is happening these days is nothing new. On the contrary, it seems to be the precise photocopy of what happened during the previous bubble in the winter of 2017/18. At the time, the value of cryptocurrencies went from 814 billion dollars to 138 (-87%), and then began to rise and touch three trillion. The lows of today are therefore higher than the highs of that time: who can exclude that we start again from here?

As the old financial saying attributed to Rothschild wants: when there is blood on the street (metaphorical) it is the time to buy. And in fact in the last week the values ​​have started to rise: Bitcoin has risen by 8%, Ethereum even by 28%, If things go more or less as in the past, a long period on a roller coaster is expected for cryptoinvestors, which could lead to new highs or maybe not (what happened in the past is important, but it is not a guarantee that it will repeat itself in the future).

In the meantime, new regulations are on the way, by both of the United States and of the European Union. Instead of fearing that these will turn the sector upside down, it should be hoped that they will bring it out of the current far west phase; especially since - as the NYT still points out - “over 62 crypto-startups are worth at least one billion dollars (...), with OpenSea, the largest nft marketplace, which has reached a valuation of 13 billion. Many of these companies are equipped to survive the market turmoil. "

Although the entire industry is (understandably) at the center of endless irony, this latest collapse is less devastating and more generalized than it might seem. If the regulations are made in the right world, if we get rid of too many chain letters that haunt the sector and above all if the web3 proves to live up to its promises, for the crypto world it may not be the end, but even a new beginning.

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