After a year and a half low last weekend, Bitcoin managed to correct a bit. It fetched just under $30,000, less than half of its all-time high last November. Bitcoin’s apparent stabilization is now pushing the crypto market into bearish behavior.
3 problems contribute to this situationand investors range from disgruntled to downright enraged:
- BTC price is 44% off its all-time high
- The price of Terra and Luna has reached $0
- The price of NFT products has fallen by 90% from its maximum value
In total, it is estimated that over US$1.5 trillion simply disappeared with this crash. This means that many investors now have worthless or much less valuable crypto than they did just a few weeks ago.
These developments have triggered several very interesting moves within the market. Even entities are now receiving inconceivable requests from crypto holders. Namely, investors are asking for redemption up to $250,000 similar to FIAT sovereign currency securities.
Certainly, those responsible will not respond to these calls. In fact, they have highlighted market volatility and even issued warnings to investors on several occasions.
Calls for centralization
Biden administration Treasury Secretary Janet Yellen stressed that a regulatory framework to protect against high risk was needed. In the House panel on cryptocurrencies, she proposed that Washington close regulatory gaps within the crypto market.
Unfortunately, while this legislation might be possible to write, it might not be possible to implement. The very nature of blockchain-based products is decentralization. As a result, they are impossible to track without having access to more than 51% of contributors.
These new rules will emphasize the economic and investment aspect of the technology. US lawmakers already find malicious behavior like cryptojacking illegal.
The only option here is something called stablecoins. These are cryptographic products tied to a certain value. In turn, they should not suffer from such volatility. The U.S. Treasury Department has pledged to create a task force that will tighten regulations on these coins. For example, only companies with deposit insurance can issue these crypto products.
However, this option is imperfect. This would allow qualified companies to issue US dollar protected ICO offers. By default, this would increase the supply of the US currency. It will also increase current inflation fears.
The fall of Luna and Terra
Since the beginning of May 2022, the two cryptocurrencies launched by the company called “Terraforming Labs” and led by Kwon Do, have completely crashed, reaching $0. For many, this is what has created huge success for the crypto market. This is because Luna and Terra’s downfall was as much a result of the market as a result of PR by the operators.
Namely, Mr. Kwan and many other online store investors had a perpetually toxic approach to doubters. This is why they often denied comments and refused to disclose market operations. In the end, the sole winner of the whole enterprise was Pantera Capital, a California-based hedge fund, which multiplied its investment by a hundredfold.
Retail investors, many of whom held the crypto hoping it would rebound, lost it all. The result even extended beyond these two ICOs; it has also spread to the entire market. Lost trust will be even harder to recover than money.
Even now, Terraforming Labs is going against the wishes of current investors. The company wants to fork from the current $LUNA coins, create the classic LUNA, and start a new blockchain. Crypto experts and LUNA/TERRA holders strongly advise against this move. Instead, they propose that a token burn would be much better at stabilizing the price of the currency. It could even restore some of the confidence lost in recent weeks.
NFTs lose their luster
Since its peak in the fourth quarter of 2021, the total non-fungible token (NFT) market has fallen by 92%. This market is unlikely to recover with reduced trading and supply.
However, NFTs are not becoming a thing of the past; these assertions would be erroneous. In fact, the value of the technology has been proven. Many current NFT trading operations like the Solana blockchain are also seeing an increase in transactions. That said, the luster and hype that many NFT offerings relied on has disappeared, leaving only those who find operational value in the technology.
Some market experts point out that the actual turnover of individual NF tokens has not decreased since the beginning of the year. They also say the interest reduction data is flawed. Still, the market price decline is severe and we cannot dispute the current reactions of buyers and investors.
Currently, most investors are visibly moving away from NFT PFPs, as these small images often depict monkeys in different clothes. Instead, they opt for more functional NFT products that serve a purpose. These products are impossible to play with, so they are much more useful as a data tool, not so much when presented as art
Crypto is not dead
A similar contraction would trigger a massive crash in other industries. However, the crypto market will likely change and grow from this. These crashes are not new to the industry, and all experienced investors have learned to expect them.
Going forward, we will definitely start to see a bigger push towards creating a legal framework for cryptocurrencies, especially big ones like Bitcoin. Some governments are already considering El Salvador’s decision to make crypto legal tender in their country, which will greatly stabilize the product.
Additionally, we can expect stabilization and a much more reasonable approach to crypto investments. Following this, investors are flocking to safer options. This means that they might not join venture capital programs like before. People are now focusing more on actual cryptocurrency products that have direct utility, not just appeal.