During a crypto winter, some participants cool their interest for a while, while others engage in daily speculation as to whether or not the market bottom is in, and why it all went wrong after the bull, despite the cyclical nature of what is occurring.
This is, to some extent, the current state of crypto, although a difference this time is that more attention is being paid to the macro situation, taking in economics and politics on both domestic and international scales.
This points to a significant change that is already playing out, which is that crypto no longer exists in a bubble. Rather than simply tuning in to the crypto charts, eyes are on equities , and it has been noted that the correlation between the two is high. What’s more, every utterance from the US Federal Reserve is pored over closely to extrapolate what bearing it will have on bitcoin and other crypto assets.
Considering that bitcoin was conceived of as an escape hatch from the conventional monetary set-up, this current focus on the Fed is incongruous. However, it gives an indication of how things might be different by the time the next bitcoin halving comes around, and we can expect that the fast-moving crypto landscape will have evolved significantly by the time we are in the next market cycle.
Institutions and Nations
Bitcoin and crypto have been behaving like tech stocks, indicating the degree to which they are becoming mainstream. It’s no longer unusual for individuals to hold crypto, and we have huge institutions such as BlackRock moving in and positioning themselves.
Whether or not we will see further nation-state activity similar to the bitcoin adoption taking place in El Salvador, remains to be seen, but it would not be a surprise if a growing number of small nations showed real interest.
All of this makes bitcoin at least, and possibly crypto as a whole, a very different proposition to what it was just a few years ago, as the possibility of it simply ceasing to exist is becoming increasingly remote. Something yet to unfold in reality, though, is the narrative that bitcoin can act as a hedge against inflation, but this may become more plausible as it gains weight as an asset.
Regulation and Politics
With adoption and growth, along with the devastating crypto collapses of the past few months, starting with Terra and spreading outwards, comes increased interest from regulators, and the necessity for crypto to engage with politics.
One result of this is that clearer lines will be drawn in assessing which cryptocurrencies act as securities, and, as a consequence, it will be made explicit that bitcoin itself is not a security, and stands apart in a category of its own.
There are also ideological clashes stirring, most notably around privacy and CBDCs. Bitcoin is the antithesis of the centralized control represented by CBDCs, and simply existing and being adopted brings into focus the flaws and dangers contained within state-controlled digital currencies. If a significant number of politicians take a pro-crypto stance, then that poses an obstacle to proponents of CBDC policies.
Around privacy, battle lines are being drawn. Many crypto advocates and blockchain developers are alarmed by the sanctioning in the US of Tornado Cash, which appears to be a case where open-source code itself is being targeted by the authorities, and pushback from crypto advocates is to be expected. At the very least, the issue of privacy, and the right to transact in private and without interference, will be brought to the fore.
Branching and Separation
As noted, when the issue of regulation comes along, it will be emphasized that not all cryptocurrencies are securities, and following on from that, not all cryptos are the same.
Bitcoin is currently treated like a tech stock, but should that be the case? After all, in El Salvador and the Central African Republic, it’s already an official currency, and Bitcoin’s focus has always been monetary.
Take Ethereum, on the other hand, which aims to facilitate some kind of decentralized web (and around which the phrase web3 is often used), and the tech stock correlation makes a lot more intuitive sense.
Could we eventually have a situation in which bitcoin is a risk-off asset, or acts as the sound money its staunchest advocates proclaim, while Ethereum and others remain risk-on tech pioneers? It’s a plausible scenario and may be worth positioning for.
NFTs, Gaming and the Metaverse
The blockchain quarter that has perhaps garnered the most mainstream attention over the past year or so has been NFTs. To be clear, not all of that attention is positive, but in terms of hype and curiosity, NFTs have blown up in ways that decentralized finance had not.
There have been celebrity flaunting, overblown price tags and art world fascination, and despite all the fanfare, most people are still not sure about what NFTs are, or the purposes they serve.
A cynic might comment that this is because NFTs in fact serve no purpose, but that would overlook the significance of decentralized digital ownership.
What’s more, NFTs overlap with gaming and metaverse development, the former of which is an enormous sector, while the latter is on course to change our relationship with the web. NFTs and the metaverse are new realms of exploration and are likely to feature markedly in crypto development over the coming years.
