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Implications of a Crypto Winter: An Outlook on the Web3 Industry During the Downtrend

The long-term outlook doesn't need to be bleak, especially if you know what to look out for.

Raymond Hsu

CEO of Cabital

Raymond’s 10 years of experience holding leadership positions in fintech companies and banks inspired him to democratise digital currency financial solutions with Cabital.

Key Takeaways:

  • We're in a crypto winter... so what?
  • Can we survive a crypto winter?
  • Opportunities for more innovative projects to succeed, shaky ventures to be eliminated
  • Here's to the crypto future!

This isn't the first crypto winter

Bitcoin, Ethereum, and the broader crypto market's downturn correlate to macroeconomic uncertainty. The uncertainty is driven by rising interest rates coupled with quantitative tightening, resulting in asset price sell-offs across the stock exchange and the crypto market.

The Federal Reserve (FED) announced a 75-basis point or 0.75-percentage point interest rate increase to combat inflation. It's the first rate hike of that size since 1994, with the US Federal Reserve Chair Jerome Powell indicating that either a 50-basis-point or a 75-basis-point increase seems most likely at their next meeting.

Both BTC and ETH quickly recovered after a minor price reduction following the hike announcement. Higher rates will naturally be a headwind for crypto assets in the short term, as a reduction in spending power reflects a decrease in investments and ultimately reduces liquidity.

As per Coinmarketcap data, the Bitcoin price has fallen by 40% since the FED began raising interest rates. It's predicted that a widespread sell-off will affect all crypto prices.

But this isn't the first winter that the crypto market has weathered. Crypto adoption has risen significantly, with several web2 companies now venturing into Web3 territory.

The upside of a crypto winter

Fortunately, there are positives to a crypto downturn - bear markets have a way of exposing previously hidden weaknesses of illusionary projects that were driven by inflated, unsustainable returns. It's quite possible that we can see events like the Terra ecosystem's unwinding, crypto lending service Celsius' fallout, and the hedge fund Three Arrows' $400 million liquidation losses repeat.

During every expansion cycle, fundamentally flawed and over-hyped projects proliferate and creep into the crypto market. This crypto winter effectively eliminates these weaker and inferior projects leaving a higher proportion of funds to be steered to credible projects.

One can draw parallels between the 2018 downturn and this crypto winter as it proved to be a golden opportunity for tech leaders to return to the drawing board and develop new viable, scalable and practical projects.

Take, for example, OpenSea, the world's first and largest Web3 marketplace for NFTs and crypto collectables, was founded in late 2017, with further development taking place in 2018 and 2019. In 2021 the company generated $20 billion in NFT sales. Naturally, there's an abundance of other examples, including DeFi, NFTs, and Web3 games.

During this bear market, there's likely to be more venture capital available to fund new projects allowing projects to position themselves to not only survive but thrive during the next big surge. 

More opportunities to strengthen projects

Naturally, there are countless opportunities for using crypto, even in a bear market such as payments, money transfers, digital assets custody, lending, borrowing, NFT incentivisation, content monetisation, and more.

Now is the ideal time to address any potential issues preventing a project from scaling effectively or addressing barriers to entry, such as payment models that may be restricting users from successfully completing transactions.

Web3 firms are accelerating their business with better, cheaper payment infrastructure and crypto payment solutions such as Cabital Connect. Furthermore, traditional businesses are now also looking to incorporate Web3 offerings while navigating through potential pitfalls to find the best technology partners.

We see that the need for API solutions like Cabital's on-and-off ramp platform is steadily growing because it empowers businesses and their users to buy and sell crypto easily and securely with fiat money without leaving their sites.

Looking to the long term future

The crypto market is currently overwhelmed by fear, uncertainty and doubt (FUD). Technically, markets look oversold, and we're bound to see prominent cryptos testing the bottom, but this scenario also allows for discounted investments.

It’s anticipated that crypto will continue to trade sideways while there is also a remote chance that crypto will be a net positive by the end of 2022 due to greater institutional and retail adoption which may offset any short declines driven by future rate hikes. 

Crypto has exited every winter stronger than it entered, and we are hopeful for the future of the blockchain industry. In this ensuing winter, this is the type of opportunity that we should seek - projects that are ground-breaking, and scalable infrastructure that will drive the next evolution of the digital asset ecosystem.

Business platforms that are built upon solid foundations stay reliable in the long run and have a built-in resilience that will see them through good times and bad, such as the crypto winter we’re currently going through.

DYOR to make sure you are investing wisely, and above all, keep building!

This article has been prepared by Cabital Fintech (LT) UAB  (the “Company”) and is general background information about some of the Company’s activities at the date of this presentation.

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