If you feel like the crypto world is crumbling down around you, you are not alone. Investors are exiting their crypto positions at a rapid pace. And sure, even though the markets up today, traders are still feeling a bit panicked.
Bitcoin ($BTC.X) was down nearly half from its historic highs this week, which might be partially because of the collapse of Terra ($UST.X) and Luna ($LUNA.X) – once darlings of the crypto world.
Every time this happens, it emboldens several parties that the crypto community hates to see smiling. The first is the mainstream press, which will stress that crypto projects rest on shaky economic foundations.
And the latter party? Well, regulators. There’s no shortage of regulators lining up to get their jabs at crypto.
These headlines embolden the CFPs and Wall Street titans of the world to uphold the pretense that “crypto is not backed by anything” and has “no real value.”
But weathering extreme volatility is considered a badge of honor in the crypto community. Holding an asset through its doldrums can result in massive amounts of street cred (if not financial gain). That could come with enormous rewards or with enormous losses.
One thing is certain: crypto investing, detached from any fundamentals that are specific to chains or protocols, is a highly speculative play — and it is likely to remain so for the immediate future. And dedicated investors almost exclusively fixate any of their long-term bull conviction cases around mass adoption.
That’s why, hot take, a bear market might not be a bad thing.
At first glance, bearish crypto markets may appear to hurt the adoption cause. Web3 mavens like to talk about onboarding “the next one billion” onto decentralized finance (DeFi) platforms. Low prices and high volatility do not exactly send positive market signals. However, drastic crypto drawdowns can help increase adoption in two ways:
First, market meltdowns provide a powerful impetus for mainstream media coverage. Even if the resulting thought pieces label crypto a ponzi scheme or ridicule the sector’s security practices, it keeps crypto in the public conversation. The more we talk about crypto, the more legitimate and deserving of analysis it becomes.
Second, bear markets provide the perfect breeding ground for experimentation and innovation. Reallocation of capital creates a winnowing effect that consolidates or eliminates lackluster projects. Meanwhile, the low-price environment makes it cheaper to conduct on-chain transactions and encourages more risk-taking from the committed core of crypto builders and investors. It is no surprise that highly successful projects, such as Uniswap and OpenSea, were founded during the 2018 bear market.
Seasoned crypto investors may be licking their wounds, but crypto and DeFi innovation will not come to a halt. The investors who stick with it will be primed for takeoff whenever the next bull market arrives.