The current crypto winter has not led to a shortage of negative headlines, but that should not overshadow the opportunity that the current price drops present to market participants. During bull runs, bull markets and otherwise marked times of market optimism, there is less focus on fundamentals, and an increased focus on rising prices. While a rising tide does indeed lift all boats, it can also overshadow lurking issues that come to the fore during periods of uncertainty and falling prices. 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 using blockchain and crypto-asset technologies.
One aspect that has been consistent, ever since bitcoin first broke into the mainstream during 2016, is the continuous push-and-pull between proponents of blockchain technology applications and those who support individual cryptocurrencies, tokens, or other tokenized assets. Both elements will undoubtedly have a role to play in the future of how data is stored, processed, transmitted and ultimately analyzed by market players. What remains to be seen, however, is how the balance and dynamics between different subsets of the crypto market – decentralized finance (DeFi), non-fungible tokens (NFT), decentralized autonomous organizations (DAOs) or central bank digital currencies (CBDCs). ) – will prevail.
The crypto winter is here and this should be seen as an opportunity for market players to design and develop better and more innovative solutions. Let’s take a look at two issues that should be on the minds of developers and investors as the crypto winter continues to move forward.
Functionality over price volatility. An ever-present thread in the crypto-asset market has been the specter of get-rich-quick schemes, and a strong focus (from investors) on the potential to buy tokens that will increase dramatically in price. Such activities and actions are signs of a healthy marketplace and should not be artificially suppressed; financial and intellectual capital is drawn to areas that give higher returns. Rather, an approach that can serve developers and organizations well in this period of low prices is to focus on the functionality of the applications versus paying attention to the prices of the associated tokens.
Examples of such an approach that are beginning to manifest in the market include, but are not limited to, blockchain-based applications related to health records, academic credentials, and property records. To gain the trust and confidence of the non-expert marketplace, which is much larger than the crypto-native or crypto-expert space, emphasis must be placed on use cases and functionality versus just using crypto as a speculative investment.
In other words, blockchain and cryptoassets need to work and appeal to an audience much larger than those investors seeking quick price increases, which is a good thing for the health and sustainability of the sector in general.
Payments must be given prominence. Despite the rush to develop new and innovative applications in the cryptoasset space, the first (and some would say the 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. However, what has been less of a focus is the appeal of using crypto for payments for individuals and entrepreneurs. The theoretical advantages and benefits of doing so are well established, but to achieve mainstream adoption, this use case needs to become clearer.
The specific cryptoassets that will take the lead in this transition and focus on payments are open to debate, but it seems fair to say that stablecoins will have an important role to play going forward. Investing in cryptoassets, or other speculative assets, requires the ability to assess risk, and cryptoassets have proven to be an asset that has a higher than normal risk profile. Crypto payments, especially those using stablecoins, are a functional foray that can enable even risk-averse investors to gain exposure to crypto assets.
Put another way, some of the most mundane cryptoassets on the market – stablecoins – may also be the easiest and most effective way to achieve wider adoption.
Cryptoassets and blockchain technology at large have continued to innovate and evolve at accelerating rates, even in the face of the current crypto winter. Short-term pain and disruption should not be minimized, but should be seen 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 market participants’ primary focus. The current crypto winter should be seen as an opportunity to refocus, allocating both intellectual and financial capital to more sustainable and comprehensive projects. The crypto ecosystem will benefit from this.