Is crypto dead? This question has been on the minds of many investors in recent months, with the leading cryptocurrency, Bitcoin, down over 50% in the last year and the entire market losing $2 trillion in value.
With cryptocurrency being one of the most polarizing topics in economics today, there are countless opinions on whether this crash signals the end of crypto or it is a market correction that was inevitable before the next bull market comes running.
So, what is the truth? Is cryptocurrency dead or alive? The answer, it seems, depends on who you ask and the type of investor you are.
How did the crypto market unravel?
Before we unpack what the future of crypto may look like, we must understand what got us here in the first place. While there is no single answer or reason for this, there are many speculations about what has driven the crypto market into the latest “crypto winter.”
One of the key factors that has helped spearhead the decline of the crypto market is the overall state of the macroeconomy. During the second quarter of 2022, the U.S. Federal Reserve announced multiple aggressive interest rate hikes to battle inflation. This rate hike signals a possible recession in the U.S., which has left investors risk-averse and scrambling to unload their crypto assets.
The rise of institutional investors
In recent months, there has been a growing trend of institutional investors entering the cryptocurrency markets. These investors are typically risk-averse and have much more capital than your average retail investor.
When they entered the market, they intended to make a profit. However, when the market began to decline, they started selling their assets, putting even more pressure on the market.
The collapse of “stablecoin” Terra LUNA
TerraUSD was the so-called stablecoin for one of the most popular smart contract platforms, Terra. A stablecoin is a type of cryptocurrency pegged to another real-world asset, such as the U.S. dollar, to reduce volatility.
However, many investors didn’t realize that the U.S. dollar did not back TerraUSD like it was supposed to. Instead, it was backed by an algorithm that would burn the Terra currency (LUNA) so that it could “mint” UST (TerraUSD) to stabilize the coin.
This system failed, and over $17 billion worth of crypto assets were lost in the Terra collapse. This created a ripple effect throughout the industry and severely impacted some key players in the crypto markets, most notably Three Arrows Capital, which had more than $3 billion in crypto assets.
Many other factors have seemingly played a role, but regardless of the cause, let’s look at the future of the cryptocurrency markets.
Is crypto dead in the water?
The answer to a specific type of investor is yes.
Before the mighty crash, millions of crypto investors were investing their money to try and “reach the moon,” a phrase that stemmed from those who invested in Dogecoin, which saw 37,000% growth over eight years.
This birthed the era of meme coins, Ponzi scheme tokenomics, and outright scams, which saw some investors make life-changing money, and many other investors lose even more. Essentially, it was the Wild West of finance, and investors were throwing Hail Marys on every single play of the game.
Enter government regulation
With scams, meme coins, and financial mayhem taking over the cryptocurrency markets, it was not long before government regulation came knocking at the door. The U.S. Securities and Exchange Commission (SEC) has been one of the most active agencies in trying to regulate the crypto industry.
In April 2022, it doubled its cryptocurrency workforce and started focusing on regulating digital assets. The SEC has also created a new task force called the Strategic Hub for Innovation and Financial Technology (FinHub), which focuses on crypto and other emerging technologies.
The introduction of government regulation was a major turning point for the cryptocurrency industry. It aims to bring much-needed clarity and structure to an otherwise chaotic market.
This has caused much uncertainty in the market, as many believe it will kill the crypto industry. Others think this could be a good thing, as it may bring much-needed legitimacy to an industry often associated with illegal activity.
But how does this impact the future of crypto? It is too soon to tell, but one thing is for sure: the days of investors expecting to become overnight millionaires are over. The market has matured, and now it is time for those who are in it for the long haul to take control.
Reasons to be optimistic about the future of cryptocurrency
With many negatives looming over the cryptocurrency market, there are some reasons to be optimistic about the long-term success of digital assets.
First, the market has recently seen a significant influx of institutional investors. These big players have deep pockets and can weather any storm. They are also the ones most likely to push for government regulation, as they want to see the industry grow sustainably.
Second, we are starting to see more real-world applications for blockchain technology. This is the underlying technology that powers cryptocurrencies, and it has a lot of potential uses beyond just financial transactions.
For example, we see more companies using blockchain to track their supply chains. Supply chains are a significant use case for the technology, as blockchain can help to ensure that products are not counterfeit and that they are sourced from ethically sound suppliers.
We also see a lot of interest in using blockchain for identity management. This is a significant problem that needs to be solved, as our current system of using Social Security numbers is outdated and insecure. Blockchain offers a much more secure way to store and manage identity information.
These are just a few examples of the many real-world applications of blockchain technology. As we see more and more use cases for the technology, we will likely see more interest and investment in cryptocurrency.
So, while the future of cryptocurrency is uncertain, there are reasons to be optimistic about its long-term prospects.