The new reality of the cryptocurrency market

We continue our series of posts tracking the crypto market dynamics in real time. The key takeaway from the previous article is that the DeFi market is essentially dead. Of course, some tokens will rally, and new protocols will emerge. But until the fresh wounds close up, investors will not return.

Indeed, why borrow euro or USD at the increased rates of 3-5% a year and stake them at 10-20% APY if all your money can be lost — not just if the smart contract gets exploited but simply if another deleveraging crisis happens. Especially since this can happen in a few hours or even days.

What next? The NFT market, most probably. Can digital pictures be worth dozens of hundreds of thousands of dollars? Of course, but at one condition: that the buyer believes to be able to resell the picture at an even higher price in the future.

Once that belief is gone, the situation becomes even worse than with DeFi. Decentralized finance protocols hold real cryptocurrency that the owner can redeem — but NFTs are nothing but pictures. It remains to be seen, though, when — or if — NFT investors will realize this.

Where will money flow next? Or will it leave the crypto market altogether? The situation is starting to resemble not 2008 but 2000, the year when the dotcom bubble crashed. A vast number of investors lost money when the new internet economy crashed, and many companies went bankrupt.

A minority of them survived, though — and even grew by a factor of hundreds or thousands from the bottom. Smart money chose not virtual projects (i.e. promises) but real ones — companies that offered actual products and services.

It's possible that after the DeFi crash something similar will happen to the crypto market overall. Investors' money will start flowing into tokens backed by real value.

If we are talking about stablecoins, it's those that are backed by fiat money in a bank account, gold, and other commodities. As for regular cryptos, the ones that will thrive are those with real utility.

For example, BTC is neither a good nor a service. It's something better — a store of value that has no equals. Another example is Ethereum - a protocol that in the future might host many structures that will have little to do with today's DeFi or NFT.

The only thing we can say for sure is this: the people who have understood the advantages of having full control over their assets thanks to crypto will never go back to banks with their short opening hours, inadequate compliance protocols and transfers that take several working days.

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