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This June the crypto market cap slumped under the $1 trillion mark for the first time since January 2021. The collapse of Terra left behind the biggest loss of wealth in recent history, with retail and institutional investors alike losing over $60 billion in funds and undermining the overall trust in the market.
We can see that the new crypto winter is at full blast. And many market participants are trying to draw parallels with the events of 2018, using the last winter to try and predict when the current one might end. But personally, I believe that this crypto winter will be very different from the last one, for several reasons.
Why will crypto winter 2022 be different from 2018?
It needs to be pointed out that the situation in 2022 is nowhere near the same as the one in 2018. When the last crypto winter started, the industry was just beginning to solidify its presence on the global stage, and most people around the world had no idea what Bitcoin, blockchain and the rest of these terms meant. The novelty of this market led to a massive spike in interest, which in turn took the form of the ICO (initial coin offering) boom.
The crypto industry was undergoing its first major expansion stage, with numerous startups taking advantage of using cryptocurrencies as a way to raise funds. It resulted in a major bull run, culminating in Bitcoin’s price reaching the $20,000 mark in December 2017.
However, this very ICO explosion ended up spoiling things for the entire crypto industry. As mentioned earlier, back in those days, many who were in the crypto industry had just entered it, still not understanding how things worked.
Bad actors in the market took advantage of that ignorance and started using ICOs to raise money from gullible investors for projects that looked pretty but had little going for them in terms of actual solutions and technology behind them.
A tremendous number of scams and failed projects created an air of uncertainty, as everyone started calling the entire crypto industry a scam, looking at every single aspect of it in a negative light. While understandable, this view of the crypto world was extremely damaging once the prices started crashing. People started leaving the industry altogether, which led to an extremely harsh crypto winter in 2018.
How is the industry faring today?
It took a considerable time for the industry to recover from the consequences of those events – but recover, it did. It has been four years since 2018, and the situation today is considerably different. The crypto industry is no longer an unknown beast that might turn on everyone in a blink of an eye.
Blockchain and crypto have become a massive ecosystem that has the eye of major mainstream companies, venture funds and even entire governments. The world at large is taking this market much more seriously now, and there is a continuing effort to not only provide suitable regulation for this industry but also to integrate it into the global financial scene.
The profile of investors in this sector has also undergone considerable change, growing from what were mostly retail players to institutions with considerable economic power behind them. In 2020 and 2021, many venture funds started actively entering the crypto sector, adding digital coins to their portfolios and bringing large amounts of money to the industry.
Just to name a few examples, there is the American venture capital firm Sequoia Capital, which announced the decision to dedicate $500-$600 million of its funds for investments in blockchain and crypto projects at the beginning of 2022.
Following the same trend, Andreessen Horowitz established a $4.5 billion fund a couple of months ago, focused on investment in crypto and Web 3.0 opportunities.
Then we also have Microstrategy, which continues to buy Bitcoin even amid the current market turmoil. At the end of June, Michael Saylor announced the acquisition of $10 million more worth of BTC.
It is a safe bet to say that a lot of other traditional venture funds and non-crypto companies will likely choose to follow similar paths moving forward.
Overall, the crypto sector has become much stronger, thanks to a large flow of investments and the arrival of major market players who are not willing to give up on the opportunities that cryptocurrencies and related technologies can offer them. Bitcoin commands a lot more trust and is trading at much higher levels than four or five years ago.
So, even if the market has to face a new crypto winter, it can surely fare better than it had back in 2018. In fact, it may even be possible that what we call ‘crypto winter’ is nothing more than a natural phenomenon for the crypto market. One where the general high spirits and exceeding buzz around overvalued projects get balanced out by a temporary decline so that the market can grow more mature.
Valentina Drofa is the founder and CEO of Drofa Comms, an international finance and fintech PR consultancy. Drofa is among the ‘top 64 women in startup,’ according to TechRound.