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Has the crypto market found its bottom?

27 July 2022
Chad Gouws, JUMOnaut, saying

Portfolio Data Engineer, Chad Gouws has worked in various tech roles where he has had the opportunity to grow his knowledge in data science, software engineering and product development. He has a keen interest in decentralised finance, blockchain and crypto. Here he unpacks his thoughts on the prospect of crypto going to zero and what it will take for backers to remain invested.

‘The last 18 months in crypto have been one for the books. Many currencies and tokens reached new all time highs, and the total market cap of the crypto market surpassed $3 trillion. It was the ultimate bull market. A bull market is really just a condition where share prices are rising and are expected to continue to rise, which encourages buying.

Unfortunately, good times don’t last forever. A looming world recession and tightening monetary policy put pressure on cryptocurrency early this year, and this risk-off mentality was supercharged by the meltdown of Terra UST. UST is an algorithmic stablecoin, which is always supposed to be equal to $1. However, UST depegged from the dollar, taking $40 billion of market value with it, and sending the entire crypto market into a downward spiral.

As of writing this blog post, Bitcoin (BTC) is a whopping 69% down from its all time high and Ether (ETH) is down 71%. The total market cap of crypto is once again below $1 trillion. Does this mean that it’s game over though? Is crypto going to zero?

Having watched the rise and fall for some time, it’s my view that as a whole, crypto is not going to zero, ever. I think many sustainable businesses and genuine projects have been created, showcasing that crypto, and more generally blockchain, can provide value and has a place in the future of technology.

But I do believe that quite a few cryptocurrencies, tokens and NFTs will go to zero (or just about). The mania and free money that drove these prices is long gone, and a sceptical, risk-off mindset has taken its place.

The biggest victims of this will be the projects that never created value or solved problems for their users to begin with. They took advantage of the hype and mania to raise capital, without a plan to build and market a viable product.

One reason this is so prevalent is that the open source nature of blockchain has made it easier than ever to launch new technology companies. This is great, but this extreme ease has also made it even easier to create projects and startups that add no value to people or organisations, and a lack of genuine value proposition will mean the end for these projects. 

A good example would be Uniswap (UNI). It is arguably one of the most successful DeFi companies in the space, but is down 89% from its All Time High. There are hundreds of tokens linked to projects that are much less successful or useful – and I think many of them won’t make it through this ‘crypto winter.’

As a general rule, I am a firm believer that blockchain projects that continue to create value for their customers by solving problems, will weather the storm.

As a general rule, I am a firm believer that blockchain projects that continue to create value for their customers by solving problems, will weather the storm.

The resulting tokens or cryptocurrency of the clear problem solvers who are adding value will still experience volatility during this tough time, but I am certain that they won’t go to zero.

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