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The crypto bear market is finally here, and all-time highs look ever more like distant sweet dreams. Bitcoin (BTC) is down over 70% from its highs, Ethereum (ETH) by almost 80% and so is virtually every other coin.
The DeFi (decentralized finance) space has also taken a hard hit with the Luna UST meltdown and the withdrawal issues of Celsius Network among many other things. Worst of all, it’s nowhere near over yet. Raging inflation means that the Federal Reserve will further increase interest rates, crashing the market further.
Among it all, the total value locked (TVL) in DeFi protocols has fallen from its all-time high of $254 billion, back at the beginning of December 2021, to the current just around $90 billion. Taken at face value, the situation looks catastrophic but that’s far from the whole picture. Despite all the expected market turbulence, there is still a lot to be optimistic about.
In fact, upon further analysis, the decrease in TVL is caused mainly by the decrease in market prices and not because users are exiting the protocols. For instance, on a good day, around 500,000 people use the Ethereum network daily which is around the same amount as exactly one year ago. DeFi projects are still drawing interest, no matter the market turmoil.
Furthermore, the bear market and inevitable crypto winter are not stopping DeFi development in its tracks. Projects like ETH, Polkadot (DOT), Cardano (ADA), Avalanche (AVAX) and many more have major updates scheduled in the months and years to come, proving that without a doubt DeFi is here to stay.
The industry has learned a lot, and people are recognizing that market turmoil is inevitable and not the end for crypto. The crypto crash happening today and the bear market of 2018 is not a repetition of the same thing.
Although it’s almost impossible to precisely predict a crash, all markets move in cycles. During a bull market, speculation leads to overvalued projects and malinvestments, which of course, sooner or later, is followed by a decline.
The last market cycle can be called the ‘era of initial coin offerings (ICOs).’ Crypto saw its first big market expansion. New projects and existing startups took advantage of the opportunity and started leveraging digital assets as a funding mechanism, often without providing any real underlying value.
The industry was extremely uncertain and overflowing with way too many bad ICOs. The market crashed after Bitcoin reached the all-time high of $20,000 in December 2017. Euphoria quickly turned into fear.
A lot of ICOs failed, and overleveraged retail investors suffered. On top of that, the fear of imminent regulations created the perfect storm for a huge market crash, with many doubting the industry will ever recover.
However, a look into the crypto space today tells a different story. Firstly, the blockchain industry has gone from a few functional networks to a series of interconnected ecosystems attracting millions of daily users. DeFi, non-fungible tokens (NFTs) and iGaming are flourishing multi-billion dollar industries, with a lot more dry powder to make it through the bear market.
On top of that, the market went from being driven mostly by retail investors to large institutions and corporations such as Grayscale and MicroStrategy. Crypto sponsorships are popping up in almost every major sport, and Web 3.0 products are being increasingly commercialized everywhere.
Even countries are starting to adopt blockchain technology. El Salvador made Bitcoin its legal tender and with current inflation, other nations may follow the same path.
It is safe to say that DeFi is not a niche subject anymore but a real driving force of the global economy. The potential it has to change the world is no secret anymore, and it’s being recognized by many.
But as significant as the blockchain industry has become, challenges remain. The collapse of Terra and UST was a heavy blow for DeFi. In the aftermath, most stablecoins including Tether struggled to maintain their peg.
Trust in stablecoin algorithms has inevitably decreased, which could prove a big issue for smart money entering the market. Without a shadow of a doubt, new security solutions and regulations are needed to stabilize the situation.
The macroeconomic outlook also looks bleak with higher inflation, interest rate hikes and market downturns looking ever more likely. Crypto is faced with a lot of challenges, but we’ve been through it before.
Bear markets are never easy. However, higher crypto adoption and industry consolidation mean that the market may not suffer as much as in 2018.
Remember market cycles are normal, and after the euphoria comes the inevitable crash. In the bear market, only projects with real underlying value and use cases survive, and fortunately, DeFi has plenty.
Kate Kurbanova is the co-founder and COO of Apostro, a risk management and security platform for DeFi projects which utilizes blockchain data to prevent economic exploits of smart contracts on client platforms. She is an experienced financial project manager and startup builder and has a strong background in blockchain including DeFi, DApps, yield farming and crypto trading projects.
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