The current crypto winter has led to no shortage of negative headlines, but that should not overshadow the opportunity that the current price declines provide to market actors. During bull runs, bull markets, and otherwise labeled times of market optimism there is less of a focus on fundamentals, and an increased focus on the rising prices. While a rising tide does indeed lift all boats, it can also overshadow lurking problems that come to the forefront during periods of uncertainty and price declines. As painful as bear markets can be for investors, and as disruptive as the current bear market has been – with multiple bankruptcies and a possible regulatory crackdown – there are opportunities to develop more sustainable applications that use blockchain and cryptoasset technologies.
One aspect that has been consistent, ever since bitcoin first burst into the mainstream during 2016, is the continuous push-and-pull between supporters of blockchain technology applications and those who support individual cryptocurrencies, tokens or other tokenized assets. Both items, without a doubt, will have a role to play in the future of how data is stored, processed, transferred, and ultimately analyzed by market actors. What remains to seen, however, is just how the balance and dynamic between different subsets of the crypto market – decentralized finance (DeFi), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), or central bank digital currencies (CBDCs) – will prevail.
Crypto winter is here, and this should be viewed as an opportunity for market actors to design and develop better and more innovative solutions. Let’s take a look at two issues that should be top of mind for developers and investors as the crypto winter continues to move forward.
Functionality over price volatility. An ever-present thread in the cryptoasset marketplace has been the specter of get-rich-quick schemes, and a powerful focus (from investors) on the potential to purchase tokens that would dramatically increase in price. Such activities and actions are signs of a healthy marketplace, and should not be artificially suppressed; financial and intellectual capital are drawn to areas that produce higher rates of return. Rather, an approach that might serve developers and organizations well during this period of depressed prices is to focus on the functionality of the applications versus simply paying attention to the prices of the associated tokens.
Examples of such an approach that are beginning to manifest in the marketplace, include, but are not limited to, blockchain-based applications connected to healthcare records, academic credentials, and property records. In order to gain the trust and confidence of the non-expert marketplace, which is much larger than the crypto-native or crypto-expert space, there will need to be an emphasis on use cases and functionality versus simply using crypto as a speculative investment.
In other words, blockchain and cryptoassets will need to work and appeal to an audience much larger than those investors seeking rapid price increases, which is a good thing for the health and sustainability of the sector overall.
Payments need to take prominence. Despite the rush to develop new and innovative applications in the cryptoasset space, the initial (and some would say most powerful) appeal of crypto is to improve the speed and transparency with which payments are made. Institutions have largely recognized this fact, with virtually every major financial institution and payment processor investing to develop blockchain and crypto related applications. What has remained less of a focus, however, is the appeal of utilizing crypto for payments for individuals and entrepreneurs. The theoretical benefits and upsides of doing so have been well-established, but in order to achieve mainstream adoption, this use case will need to become clearer.
The specific cryptoassets that will take the lead in this transition and focus on payments is open for debate, but it does seem reasonable to state that stablecoins will have an important role to play moving forward. Investing in cryptoassets, or any other speculative asset, requires an ability to assess risk, and cryptoassets have proven to be an asset that possesses a higher-than-normal risk profile. Crypto payments, particularly those that utilize stablecoins, are a functional on-ramp that can enable even risk-averse investors to gain exposure to cryptoassets.
Stated another way, some of the most mundane cryptoassets in the marketplace – stablecoins – might also be the simplest and most effective way to obtain wider adoption.
Cryptoassets and blockchain technology at large have continued to innovate and advance at accelerating rates, even in the face of the current crypto winter. Short-term pain and disruptions should not be minimized, but should be viewed as an opportunity for investors, developers, and regulators to focus on building out more sustainable and functional applications. Price volatility certainly generates headlines, but should not be the primary focus of market participants. The current crypto winter should be viewed an opportunity to re-focus, and allocate both intellectual and financial capital to more sustainable and comprehensive projects. The crypto ecosystem will benefit as a result.
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