The cryptocurrency sector is preparing for a new “winter” – Il Post

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The cryptocurrency sector has long been accustomed to large fluctuations in value, with significant spikes and equally dramatic collapses. But in the midst of the fluctuations there were periods of particular and prolonged decline, which lasted several months: in the jargon of the crypto world – which contains cryptocurrencies but also NFTs and other applications of the blockchain, the technology on which everything is based – these periods are called crypto winter“Crypto winters”.

So far the sector has gone through two main “winters”, which have conditioned its development and have been followed by moments of growth. The first occurred between 2013 and 2014, when Bitcoin lost almost 80% of its value, starting with China’s ban on cryptocurrency in December 2013. A similar crisis also occurred in 2018, and Bitcoin lost 45% of its value, mostly due to the speculative bubble linked to initial coin offerings (or ICOs), a controversial financing method that generated a speculative bubble.

According to more and more observers and operators in the sector, a new period of crisis of this type is underway, which began in the first months of 2022 and is destined to last a long time. In the first five months of the year, in fact, the sector nominally lost about 1,500 billion dollars in total value, and the price of bitcoins fell by 56% from last November’s peak. Meanwhile, Ethereum, the second most popular cryptocurrency in the world, has lost 63% of its value, and an experiment like TerraUSD, a currency known as a “stablecoin” and designed to maintain a fixed value tied to the US dollar, has come to losing nearly 100% of its value last month.

This winter would be, according to the Washington Post, «Long, cold and rigid», capable of causing greater damage than the previous ones, due to the transformations that the entire sector has undergone in recent years. Until 2018, in fact, the crypto world could be reduced to the main cryptocurrencies (Bitcoin, Ethereum), some minor products (such as Ripple or Bitcoin Cash) and niche and less credible phenomena such as Dogecoin (born as a parody of a cryptocurrency but ended up have their own following). Today, however, cryptocurrencies represent only a part of a larger business, also called Web3, an expression which indicates the set of technologies inherent to the blockchain that some see as an evolution of the world wide web.

According to an analysis by the Morningstar company, in 2021 alone the crypto sector would have doubled in size, reaching a peak of 2.6 trillion dollars in value: this is a valuation higher than the value of Apple and Microsoft combined, and in fact it is widely questioned by those who believe it is a huge speculative bubble waiting to burst. Although the devaluations in the sector in recent months are lower than those recorded in other historical moments, “the effects of the crisis are felt more because the market has grown a lot”, as the Washington Post.

– Read also: In the face of crises, the “crypto bros” form a group

In previous moments of crisis in the sector, NFTs did not have the prominent position they have today. Non-Fungible Tokens are blockchain-based digital certificates of authenticity, which also began to be talked about among the general public starting in February 2021, when a work of digital artist Mike Winkelmann – known as Beeple – was sold in an auction at Christie’s for the equivalent of $ 69 million in ether. Officially, NFTs have existed since 2014, but only in the last year have they been applied, with mixed results, to various fields, including art, fashion and video games.

The first signs of the current crisis had come precisely from the NFTs, which in the first months of the year had recorded decreases both in daily exchanges and in the number of active wallets (digital wallets used to store and exchange cryptocurrencies). There are those who consider NFTs the epicenter of this crisis, as the most speculative and volatile form of the entire Web sector3, as evidenced by the many reports on questionable digital “works of art” sold for hundreds of thousands or even millions dollars, and devalued dramatically within a few weeks.

Due to the excesses typical of this market, a part of investors is learning to live with the concept of “winter”, incorporating its criticalities in the development projects of startups and new services. The Andreessen Horowitz (a16z) investment fund, one of the most influential in Silicon Valley, invested $ 7.6 billion in the sector, with an investment of $ 4.5 billion made at the end of May. According to a report (pdf) recently published by the company, in fact, «the advantages obtained by the builders [i «costruttori», come a16z chiama chi lavora nel Web3] during the darkest days they only generate optimism when the waters calm down ».

The sector, moreover, is not as uniform as it seems: the most loyal Bitcoin investors are critical of any other form of cryptocurrency, especially the Ethereum blockchain, on which much of the speculation on NFTs is based. There are therefore those who hope that the new period of crisis will serve to distinguish the most solid projects from the most fragile ones. Entrepreneur Tina He explained to Vox that “at every cycle, when there is a big crash, I think the people who are building something calmly are ecstatic because some of the noise is blown away.”

– Read also: Are NFTs already in crisis?

One of the most used comparisons in recent months is that with the so-called “dot com bubble”, the financial bubble born around the digital companies that operated at the beginning of the Internet. Developed towards the end of the nineties and exploded between 2000 and 2001, it was a turning point in the history of the sector because it revealed the inconsistency of the strangest and most unsustainable experiments. In fact, at the time, companies like Pets.com, a company that sold pet food online, reached disproportionate prices in the wake of the enthusiasm of investors and speculators, only to collapse two years later. The most optimistic, however, recall that among the companies most affected by this bubble there was also Amazon, proof of the fact that commercial empires can also be born from a catastrophic bubble.

Beyond this insider optimism, the recent collapse of the sector has had disastrous effects for many people, especially in the global South, who have seen their savings disappear almost entirely within days. As told by the site Rest of Worldin fact, the collapse of TerraUSD mainly affected people in countries such as Argentina, Venezuela, Iran and Nigeria, where cryptocurrencies and “stablecoins” were presented as better alternatives than the local currency.