Cryptocurrency prices have shifted further south in the past few weeks. Newbies to the space have been alarmed and were worried that things are ending for the web3 industry. We reached out to experts to find out what’s really happening there. Here is what they had to say.
Jawad Nayyar Co-Founder and Chief Vision Officer of DAO PropTech
“The critics of crypto blame it to be little more than a casino of virtual assets. The price volatility is unlike any other asset class with 50 percent of total value erased within the three months. Lack of intrinsic value resulting in speculative investments is the main reason attributed to this high volatility. Cryptos are little different in this regard to the modern fiat money issued at the whims of the central banks without any asset backing. Their value is derived from the belief of its users, a shaky situation in the absence of the legitimacy provided by the governments. Additionally, lack of regulation and unavailability of user data makes it prone to money laundering, fraud, and terror financing. These inherent problems with cryptocurrencies can be solved by pegging them with a lucrative yet tangible and regulated asset class like real estate.
Real estate assets have been one of the biggest stores of global wealth forever. Current global real estate assets are valued at above $280 trillion (more than 75% of global wealth). Additionally, it is managed, used, and owned by millions of individuals and corporations across the world and regulated by central governments – a truly decentralized ownership structure. Some in the blockchain community believe this asset class to be the pinnacle of the crypto revolution.”
Nick Saponaro, CEO, Divi Labs, San Diego, CA
Divi is on a mission to improve people’s lives by making crypto easy and accelerating its mainstream adoption. By removing barriers to entry, innovating new frictionless technologies, and delivering use cases for the developed and developing world, Divi is helping people across the globe to engage in the Crypto economy and achieve financial freedom and inclusion. For more information visit: https://diviproject.org/
What’s causing the crypto market crash?
The fed has been signaling interest rate hikes, which caused the stock market to see a sharp decline. This in turn has a cascading effect on the crypto markets. Add to that a possible war between Ukraine and Russia, in which the US (among other obligated nations) would be forced to intervene.
Compile all of that with a heavily leveraged market with massive open interest. In-flows to exchanges have been high since before Christmas, which usually signals selling is about to take place, and/or people are adding BTC to cover their margin trades.
In either case, the result is typically a red candle. We’re also deep into the post-halving cycle. Tax selling continues through January as people get ready to pay their tax obligations. The list goes on, and veterans who watch the space closely alongside macro indicators have been in stablecoin since the holidays.
How is this impacting the crypto industry as a whole: exchanges, DeFi, Web3 & more
Exchanges make more money during a market crash than they do when we’re in a full-on bull run. Being both the entry and exit point for the majority of people has its benefits. Many DeFi protocols are based around stablecoin yield, tokens are suffering of course, but generally no negative impact to the sector at large. NFTs are holding their ETH value for the most part and we haven’t seen a major decline there yet.
Cause for concern, why or why not?
No one is concerned. Builders will keep building and most of us have been through multiple bear markets at this point. In times of decline you must ask yourself, has anything fundamentally changed about this asset class that should change my investment thesis? The answer here is no, especially from a long-term view.
Not everyone will become a crypto millionaire. For some to win, some must also lose.
Stay sharp, watch the on-chain metrics, use history as a guide, pay attention to macro indicators, and contradict sentiment.
Aaron Samsonoff, Crypto and DeFi expert, Chief Strategy Officer and Co-Founder of InvestDEFY
“Risk assets in general have been significant beneficiaries of historically low interest rates and easy fiscal/monetary policy. The FED has pivoted on its stance from inflation being transitionary to a realization it is threatening the price of goods and services which can have a reverberating effect on the economy. This has caused ripples in the markets as we shift to a regime of potentially multiple rate hikes and a reduction of the FED’s balance sheet.
It is important to realize that the market has priced in quite an aggressive roadmap of rate hikes and quantitative tightening. If the FED’s actions are not as hawkish, we will see some risk start to re-enter the markets.
Crypto and the broad markets have a loose correlation on the way up and all assets have a strong correlation to the downside, which is what we are seeing right now with crypto prices crashing—peak fear and the punch bowl of easy liquidity is being removed.
My 2022 base case thesis is that BTC will range between $30k – $65k with periods of extreme volatility. There will be more rotation between crypto sectors with less new money entering the space until a new BTC narrative takes hold. There is plenty of money on the sidelines looking to enter, but at what price and narrative is to be determined. There will be less of a tailwind behind every asset rising and it will become more of a traders market with fundamentally strong assets that generate revenue being beneficiaries of capital vs. meme and hyper speculative assets.
Whether the FED hikes, pivots or launches a central bank digital currency, I see more capital flowing into crypto over the next 6-18 months. We aren’t dealing with a Bitcoin asset bubble—we are dealing with an everything bubble and all roads lead back to BTC and other tangible assets such as gold, income-producing land and some raw commodities.
BTC is a short on all fiat currency debasement. Ethereum and DeFi is a bet on our slow and archaic financial system full of gatekeepers being displaced by a fully automated, decentralized financial system that operates 24/7/365 where code is the law and it allows anyone to participate directly. This truly democratizes access to wealth creation opportunities and levels the playing field irregardless of age, ethnicity, location or net worth.”
“In 2022, NFTs will be sunshine with periods of clouds and occasional but expected thunderstorms, “explains Justin. “NFTs will continue to grow but they will have to address fraud concerns and likely regulations in 2022. The key to additional NFT use cases is understanding what intermediary is being disrupted and what incentives does the community have to adopt the NFT use case.”
“It will be increasingly challenging for NFT exchanges to avoid engaging in AML/KYC practices,” adds Justin. “It is inevitable there will be fraud in these marketplaces and regulators will demand more careful vetting of exchange participants. The wildcard here is will and under what circumstances the SEC will consider an NFT a security. Bitcoin moved first and grew fast and became decentralized enough that the SEC determined it was not a security. It is a key determination because it would turn an NFT exchange into a security exchange.”
Giorgi Khazaradze, Aurox CEO and Co-Founder
“There are a variety of reasons why crypto is currently on a downtrend trend.
The cryptocurrency market is seen as a giant tech market, and therefore, it has started to follow tech stocks trends in the capital market. In the past few weeks, we’ve seen a significant drop in tech stocks which have, unfortunately, bled into the cryptocurrency markets.
Furthermore, in the past few years, retail and institutions have been hedging against inflation by deploying liquid capital in appreciating assets which includes both crypto and stocks. The Federal Reserve has signaled its intent to begin raising interest rates this year, causing uncertainty in the market. The same people who invested in crypto to hedge against inflation are worried that there will be less liquid capital to be deployed into crypto in 2022. The fear around it has caused the crypto market to drop before the interest rate hikes are even introduced.
Lastly, these volatile movements are an everyday occurrence in crypto. Bitcoin can go up to 50% in just a few weeks, and down 50% the next. People sell at the top to make profit which causes others to panic and sell. It is nothing out of the ordinary. With how quickly crypto is expanding, we’ll see the prices go back up in no time.
Please comment on the prospects for the crypto space in 2022 and beyond:
Crypto has been expanding at an incredible pace. With the vast and fast growing technologies being developed, it can change the entire traditional financial system. Unfortunately, these incredible products don’t always make headlines.
We expect to see more and more exceptional financial softwares being developed using blockchain technology in 2022. Smart contracts and DeFi have changed the entire playing field. Once the user experience of DeFi is improved, it will allow the average person to take control of their finances.
The foundation of DeFi is being set as we speak. In the next few years, it will be focused on creating easy to use software for the general public. That is when mass adoption of cryptocurrency will happen. The world will slowly recognize the true potential of crypto and the blockchain over the next few years”.
Aurox is a free, all-in-one cryptocurrency terminal that integrates data, content and strategies to help crypto traders make better decisions. Think Bloomberg Terminal for crypto trading. Co-founded by crypto traders Giorgi Khazaradze, Ziga Naglic and Taraz Andreyevich in 2017, Aurox was built to solve many of the problems that continue to plague the crypto community – from expensive platforms with fragmented information to pump-and-dump-scams. Today, a community of more than 50,000 traders trust Aurox to access powerful, easy-to-use market trend indicators and 60+ crypto exchanges.
Grigory Rybalchenko, Founder of Emiswap
There are many elements to consider, and it’s still difficult to pinpoint why this is happening. China’s crypto ban initially sunk in the market, compounded by bitcoin’s power usage problem and Elon Musk’s constant bashing of the coin on his podcast appearances.
Then there’s the issue of lesser demand coupled with regulations, leading to volatility in bitcoin. When a government enacts rules on Bitcoin and other digital currencies, the price of Bitcoin and other digital currencies may rise or fall. The price falls due to speculators selling more to mitigate their losses.
And since cryptocurrencies are no longer an isolated risk asset; they are responding to changes in global policy and even pop culture; it’s not a surprise that bitcoin will become more volatile when liquidity taps are turned off. Furthermore, because crypto is digital and primarily exists online, news about it spreads 100 times quicker than ordinary events. So, since the market is open 24 hours a day, seven days a week, and millions of individuals participate every second, the reactions to a minor price reduction are amplified.
Another factor could be the emotional aspect of owning 0.239567 BTC, and you can understand people’s irritation when they fear they won’t be able to own even a single bitcoin. As a result, beginners are foregoing small quantities of bitcoin in favor of 1000 TRX or 1,000,000 Shiba Inu, hoping that the price will rise. However, the crypto market is still inextricably linked to bitcoin, and when bitcoin falls, the market falls with it.