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The crypto bear market is finally here, and all-time highs are starting to look like distant sweet dreams. Bitcoin (BTC) is down over 70% from its highs, Ethereum (ETH) is down nearly 80%, and so is virtually every other coin.
The DeFi (decentralized finance) space has also been hit hard by the Luna UST merger and Celsius Network pullout issuesamong many other things. The worst thing is that it’s far from over. The raging inflation means the Federal Reserve will keep raising interest rates, which will further crash the market.
Among other things, the total value locked in DeFi protocols (TVL) has fallen from its all-time high of $254 billion in early December 2021 to just around $90 billion at present. The situation looks disastrous at face value, but that’s far from the whole picture. Despite all the expected market turbulence, there is still a lot of optimism.
In fact, according to further analysis, the decrease in TVL is mainly caused by the decrease in market prices and not because of users leaving the logs. For example, on a good day, around 500,000 people use the Ethereum network every daythat’s about as much as exactly a year ago. DeFi projects are still attracting interest despite the market turmoil.
Furthermore, the bear market and the inevitable crypto winter are not stopping DeFi development. Projects like ETH, Polkadot (DOT), Cardano (ADA), Avalanche (AVAX), and many more have major updates planned in the coming months and years, proving that DeFi is here to stay without a doubt.
The industry has learned a lot and people are realizing that market turmoil is inevitable and not the end for crypto. The crypto crash taking place today and the 2018 bear market are not a repeat of the same thing.
Although it is almost impossible to accurately predict a crash, all markets move in cycles. During a bull market, speculation leads to overvalued projects and bad investments, which of course are followed sooner or later by a decline.
The last market cycle can be described as the “Initial Coin Offerings (ICOs) era”. Crypto experienced its first major market expansion. New projects and existing startups took the opportunity and started using digital assets as a funding mechanism, often without offering any real underlying value.
The industry has been extremely uncertain and overflowing with way too many bad ICOs. The market crashed after bitcoin hit the all-time high of $20,000 in December 2017. Euphoria quickly turned to fear.
Many ICOs failed and over-indebted small investors suffered as a result. Additionally, fears of impending regulations created the perfect storm for a major market crash from which many doubt the industry will ever recover.
However, a look into today’s crypto space tells a different story. First, the blockchain industry has evolved from a few functional networks into a series of interconnected ecosystems that attract millions of users every day. DeFi, non-fungible tokens (NFTs) and iGaming are thriving multi-billion dollar industries, with plenty more dry powder to weather the bear market.
In addition, the market has evolved from mainly retail investors to large institutions and companies such as Grayscale and MicroStrategy. Crypto sponsorships are popping up in almost every major sport, and Web 3.0 products are becoming increasingly commercialized everywhere.
Even countries are starting to adopt blockchain technology. El Salvador has made bitcoin its legal tender and with the current inflation, other nations may follow the same path.
It’s safe to say that DeFi is no longer a niche topic, but a real engine of the global economy. The potential it has to change the world is no longer a secret and is being recognized by many.
But as significant as the blockchain industry has become, challenges remain. The collapse of Terra and UST was a major blow to DeFi. As a result, most stablecoins, including Tether, struggled to maintain their peg.
Confidence in stablecoin algorithms has inevitably declined, which could prove to be a major problem for smart money entering the market. Undoubtedly, new security solutions and regulations are needed to stabilize the situation.
The macroeconomic outlook also looks bleak as higher inflation, rate hikes and market downturns become increasingly likely. Crypto faces many challenges, but we’ve been through them before.
Bear markets are never easy. However, higher crypto adoption and industry consolidation mean the market may not suffer as much as it did in 2018.
RememberMarket cycles are normal, and after the euphoria comes the inevitable crash. In the bear market, only projects with real underlying value and use cases survive, and fortunately, DeFi has plenty of them.
Kate Kurbanova is co-founder and COO of Apostro, a risk management and security platform for DeFi projects that uses blockchain data to prevent the commercial exploitation of smart contracts on client platforms. She is an experienced financial project manager and startup builder and has a strong background in blockchain including DeFi, DApps, yield farming and crypto trading projects.
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