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So What if Crypto Winter is Here? [LITE]
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So What if Crypto Winter is Here? [LITE]

Here's why 2022 is not like 2018.

Donovan Choy
Jun 6
14
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So What if Crypto Winter is Here? [LITE]
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Bankless premium members get full access to the June edition of Bankless Token Ratings.

This month, we rated MPL, AAVE, APE, ENS, UNI, and MKR. 👀

Plus you can access the Inner Circle Discord, claim your community badge, and enjoy exclusive Token reports and airdrop guides when you subscribe!


Dear Bankless Nation,

“Has the market bottomed yet?” is the billion dollar question. 

If you spend any time in the Web3 echo chamber, you’ll see that hopium is still in high supply. The crypto collective conscious wants to believe that the recent drawdown over the past few months is ‘transitory,’ and that market prices will bounce back imminently. 

Admittedly, that optimism is hard to sustain. 

Market prices tell a worrying tale: Bitcoin is down 58% today from all-time-highs (ATH) of ~$67,000, Ether 62% from an ATH of ~$4700, and the overall crypto market cap down 58% from 2.8 to 1.2 trillion. Both the Fed and BoE are in the midst of a rate-hike bonanza to stave off inflation, with plans to embark on quantitative tightening. The implosion of the fifth-largest blockchain Terra — considered by many to be a “blue-chip” — didn’t help.

To boot, there are significant layoffs in the crypto industry. Coinbase has dramatically rescinded job offers. Robinhood, Gemini, Brazilian crypto unicorn 2TM and Mexico-based Bitso are all reportedly axing ~10% of their workforces.

Should we be worried that a crypto winter is coming? What defines a crypto winter anyway?

Image

Consider the market conditions of 2018’s bear market. In early 2018, Bitcoin dumped 69% from its 2017 all-time-high of $19,783 to $6,155 in the span of seven weeks. Total crypto market cap plummeted from $830 billion to $120 billion by the end of the year. The seeds of DeFi were planted in the debris of ICO Mania, but it wasn’t quite a thing yet. The average corporation viewed cryptocurrencies not with opportunity, but skepticism, and it was fashionable for policymakers and CEOs to dismiss the sector as one big scam. 

…But price signals and headlines don’t tell the whole story. 

2022 is not 2018

Look around the crypto landscape today. By all measures, the state of crypto today is vastly superior to where we were in the aftermath of 2018’s bull market.

First, the state of DeFi is light years ahead. By the end of 2017’s bull run, only about ~100 dapps were live. Today, there are thousands on Ethereum alone. The NFT and blockchain gaming spaces are two multi-billion dollar verticals, and we’re even seeing early signs of DeFi on the Bitcoin blockchain.

Layer-1s are dramatically scaling transaction throughput, whether through rollup technologies on Layer-2s, Layer-0 interoperability networks (Cosmos, Polkadot) or payment channels like Lightning Network. Ethereum’s total Layer-2 ecosystem today boasts a TVL of $5.1 billion. All of these were abstract, academic ideas in 2018, but are all fully deployed in functioning protocols today. 

DAOs were a collection of obscure communities three years ago, but are today a megaforce with $9 billion in treasury backings. It’s no wonder they’re siphoning talent from traditional labor markets. DAOs are rapidly developing infrastructural tooling, and devising credible strategies around governance and treasury management. 

With so many more cases for utility in DeFi today, the ability to speculate for a quick profit is no longer the primary reason investors pay attention to crypto.

Second, a slew of large institutional players have one foot through the Web3 door. The biggest suits on Wall Street like JP Morgan, Citi, BNY Mellon and many more global banks are expanding their product offerings into crypto-assets, or directly leveraging on DeFi protocols. Despite layoffs, Coinbase and Robinhood are rolling out their own crypto wallets. 

Then there’s Big Tech’s foray into the metaverse: Facebook’s rebrand into Meta; Twitter, Instagram and Spotify’s integration of NFTs; Google and Microsoft are spinning off their own Web3 research units or actively investing into Web3. Giant retail and fashion brands are all pivoting their business strategies into Web3: Walmart, Warner Bros, Gucci, Louis Vuitton, Nike, just to name a few. 

Third, the industry is flush with capital. Unlike 2018’s bear market, there’s little worry that builders will be stalled by a bear. Total funds raised by blockchain startups in 2018 was $5.8 billion, about a quarter of the total $25.1 billion raised in 2021. 

We’re halfway into 2022, and VCs have reportedly raised $15 billion this year. This number does not include the monster war chest of $4.5 billion by a16z announced this past week (ICYMI: Check out our podcast with Marc Andreessen & Chris Dixon). Market prices might be down, but abundant capital ensures innovation chugs on.

Finally — and perhaps most importantly — the Overton window for crypto policy is rapidly shifting away from “banning” crypto towards “how to regulate” it. That’s unlikely to placate the most hardcore techno-libertarians, but dealing in absolutes isn’t particularly useful in measuring progress. Within policymaking circles — particularly in the West — condemnations of crypto are starting to sound silly. All good politicians have a nose for opportunity, and they can see that it’s better to be riding this wave rather than standing against it. 

The crypto and broader Web3 sector is now impossible to ignore, and perhaps even politically unwise to do so given its unbannable nature. Case in point: China tried to stamp out crypto mining, but it didn’t work. At least 21% of the Bitcoin network’s mining power remains within its borders. Regulatory talk about the banning of cryptocurrencies used to plummet prices, but crypto has grown antifragile to that threat. 

Twitter avatar for @SenLummisSenator Cynthia Lummis @SenLummis
We’ve been teasing it for months, but the time is almost here – a proposal to fully integrate digital assets into our financial system. Excited to finally unveil this effort next week. Stay tuned 👀 👀 👀

June 3rd 2022

2,882 Retweets14,771 Likes

Web3 innovation is moving at a faster pace. Corporations are slow, lumbering, risk-averse giants that tread with caution, for fear of disrupting a comfortable status quo. Bull markets uplift public credibility, and heave off organizational inertia and skepticism that hinders entrepreneurial growth. 

“Will crypto prices ever recover?” was a question commonplace in previous bear markets. 

“When will crypto prices recover?” is a question more befitting today’s bear market. 

Therein lies the key to all this. The existential threat with which many of us lived during previous bear markets is a non-starter this time round. Even crypto skeptics can see what we’ve built.

Bear markets are a difficult pill to swallow

Market corrections are painful. But they also represent a necessary precursor to economic progress.

If you've taken any kind of economics class, market competition is typically treated as a settled state of affairs where firms are “price-takers” under assumptions of “perfect competition.” These models net useful insights about how different economic variables play off one another under ceteris paribus conditions, but it also obscures the most important factor of all: Markets are a discovery process for what works. 

Free markets let a thousand flowers bloom, but the majority are rotten apples in disguise. Profit and loss signals are an important mechanism to weeding out the rotten apples: the unsustainable, debt-laden losers who take shortcuts from the winners who don’t. Without the trial and error experimentation of market competition — economists call it creative destruction — we will never attain the necessary knowledge to know what does or doesn’t work.

David previously called this the “bear market wash-cycle,” where economic contractions force developers to return to the fundamental drawing board. The path that many Alt-L1s pursued was one of unsustainable growth subsidized by hyperinflationary token emissions. These strategies were obscured by massive capital injections during a bull run. But in hard times, that ugly underbelly is laid bare to all to see.

Booms and busts indicate the healthy functioning of markets. Following every “bust,” markets are better equipped to know what works and what doesn’t.

Closing

Analysts often make bold predictions about market trends.

These types of predictions are freakishly difficult to get right given the multitude of macroeconomic variables in the equation.

For every one they get right, there’s another dozen they get wrong — which are then promptly forgotten. The truth is no one can foresee when exactly crypto markets will recover.

But a sober look at the current crypto landscape finds many objective reasons to be optimistic and patient. In all respects, the “fundamentals” of the current bear market are much stronger than they were in 2018, and the sector is far better positioned to spring out of the current rut.

— Donovan


🙏 Sponsor: Polygon Studios—Fostering culture across Gaming, NFTs, and the Metaverse✨


🎙️ NEW PODCAST EPISODE

Listen to podcast episode | Apple | Spotify | YouTube | RSS Feed


MARKET MONDAY:

Scan this section and dig into anything interesting

Market numbers 📊

  • BED and GMI stays stagnant at $70 and $23 since last Monday

  • DEX volume slips -15% to $11B from $13B last Monday

  • DeFi TVL maintains at $55B from last Monday

  • L2 TVL jumps 11% to $5B from $4.5B last Monday

  • BTC funding rate drops down to -0.65% (Bitmex)

  • ETH funding rate falls to +1.52% (Binance)

Market Opportunities 💰

Yield Opportunities 🌾

What’s Hot 🔥

  • FTX surpassed Coinbase as second-biggest centralized crypto exchange in May

  • Block production on Solana mainnet halted

  • ZAMM, a new DeFi Primitive on Serum is now live

  • Senator Lummis is proposing to fully integrate digital assets into TradFi

  • discord.eth was purchased for 32 ETH

  • Japan passes bill, allowing banks to issue stablecoins

  • sartoshi: 6/9/2022 Next Era

  • Interest Protocol, a fractional reserve banking protocol announces launch

  • Kanye West files for NFT trademarks on Yeezus brand

  • Genesis parks $75 million in capital into Maple’s Solana-based lending platform

  • Former product manager of OpenSea charged for NFT insider trading

Money reads 📚

  • Ethereum's longest lived PoW testnet is moving to Proof of Stake - Tim Beiko

  • Fidelity’s Crypto-Focused Business Plans Tech Hiring Spree - WSJ

  • Back to the Basics with DeFi fundamentals - Kirill Naumov

  • The Depegging of UST - Nihar Shah

  • A snapshot of the current rollup ecosystem - Alex Beckett

  • The Hitchhikers Guide to Yield - Jack Melnick

  • The Stablecoin Edition - Bankless DAOc.

  • Are DAOs “Fake” Democracies? - Noah Edelman

    • Reply to Noah Edelman - Donovan Choy

  • Shut it Down! - Arthur Hayes

  • The risks of Liquid Staking Derivatives like Lido - Danny Ryan

  • The Terrapunk Manifesto - Jack Nasjaq


Trending Project: goblintown 📈


What We’re Buying 👀


Governance Alpha 🚨


Meme of the Week 😂

Twitter avatar for @crypto_randCrypto Rand @crypto_rand
Bruh
Image

May 30th 2022

30 Retweets249 Likes


Job opportunities 🧑‍💼

✨ See all listings on the Bankless Job Board✨

  1. Tech Lead at Swell Network

  2. Solidity Developer at Unlockd

  3. Senior Product Designer at Streams

  4. Business Development Lead at Goldfinch


Action Steps

  • 📚 Execute any good market opportunities you saw

  • 🎙️ Listen to The Bear Market Gift with Vance Spencer


🙏Thanks to our sponsor

POLYGON STUDIOS

Polygon Studios is on a mission to help build digital culture, play-to-earn gaming, NFTs, and the Metaverse ecosystem on Polygon. Some of the key projects supported by Polygon Studios include The Sandbox, Skyweaver, Big Time, Crypto Unicorns, and Decentraland—among others. Polygon Studios also helps fundraising & onboarding. Check it out here.

Stay updated on the latest amazing gaming, NFT, and metaverse projects:

👉 Join the Polygon Studios Discord

👉 Follow Polygon Studios on Twitter


Want to get featured on Bankless? Send your article to submissions@banklesshq.com

Write for Bankless


Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.


Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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