Punched in the gut, crypto is down but not out. GSR examines where cryptocurrencies could be headed and why we should remain bullish.
Thoughts on Crypto Price Action
With bitcoin down 67% from its November 2021 high and altcoins faring even worse, the past 14 months’ lazy price action has ignited pessimism and despondency toward crypto from even its most ardent supporters. However, we maintain that such volatile price movements are normal and to be expected given the advent of technology and the associated uncertainty surrounding future cash flows and less precise valuation methods, and reduce the fundamental information content of large movements.
Bitcoin’s historical price movements
Source: Source: Glassnode, GSR
Furthermore, we contend that much of the price action is driven by sentiment – similar to US software industry valuations rising in 2021 despite falling earnings – and by the macro environment – given the turnaround in interest rate expectations in late 2021 – rather than a change in underlying underlying fundamentals of crypto or its long-term prospects.
The dot-com bust is a historical parallel where exuberance and a supportive macro environment quickly collapsed as both sentiment and backdrop swung, although the acceptance, development, talent and capital garnered during the boom laid the foundations for a transformative technology that is now affecting our everyday lives. And the silver lining for crypto is that the dramatic price drop now offers significantly greater upside potential for those whose thesis is still intact – we contend that the smart money is not just HODLing, it’s doubling.
Krypto’s long-term future state
With price being a bad signal of what blockchain/crypto might become, there are a number of indicators and analyzes that provide insight into the current and future state of the industry such as:
Use cases & benefits: Blockchains bring many use cases and benefits that are not possible with other technologies. First, as open, decentralized networks that execute code as written and store data in a transparent and tamper-proof manner, blockchain technology allows for the removal of intermediaries by replacing them with autonomous, trusted code, such as: B. in decentralized finance. Second, unlike traditional finance, which is built on outdated rails, blockchain technology is reinventing the rails themselves to enable a permissionless exchange of value with near-zero cost and near-instant settlement every second of every day. Finally, blockchain technology enables new paradigms around governance (e.g. DAOs), ownership (e.g. NFTs) and business models (e.g. token incentives). These revolutionary use cases and benefits should drive continued adoption and development.
Bitcoin Properties and Blockchain Use Cases
Source: Source: GSR
mental models: Mental models can help to better understand complex concepts and provide insights into what lies ahead. A particularly relevant mental model is that of the internet, the next phase of which will be powered by blockchain/crypto. In fact, Web1 was characterized by static web pages connected by hyperlinks and controlled by corporations (i.e., the read-only web), while Web2 ushered in dynamic, user-generated, community-centric web pages (i.e., the read-write web). . Now web3, which uses blockchain technology and tokens, is created, owned and operated by its users and not by Big Tech (i.e. the Read-Write-Own-Web). A second mental model is that of computer development, in which early enterprise mainframes were owned and used by large corporations and later gave rise to personal computers owned and used by individuals. Now, blockchain technology ushers in the era of the public computer, a virtual computer that exists nowhere and everywhere, owned by nobody but used by everyone. These next iterations of the internet and the computer may be their greatest yet.
Web1, Web2, Web3 comparison
Source: GSR
Underlying fundamentals: Another method of assessing the current and future health of crypto is by examining the underlying long-term fundamental trends. Adoption and usage, for example, continue to grow despite the bear market, with the number of crypto users up ~40% over the course of 2022 and total transactions on Ethereum and its layer twos in Q4 22 vs Q4 21 increased by 30% overall. Development continues to ramp up as well, with the number of verified smart contracts deployed in 2022 up 50% and the number of full-time crypto developers up 8% year-on-year from January 2023. And despite the well-publicized layoffs, employment remains well above where it was a few years ago, with headcount rising at most major crypto companies. Finally, the total amount of venture capital invested in 2022 was roughly the same as last year, and while the pace of deployment has slowed, the $22 billion is delivering to fuel the industry for years to come. These trends point towards long-term secular expansion.
Long-term underlying crypto fundamentals
Sources: Crypto.com, L2BEAT, Electric Capital, Pitchbook, GSR
key challenge: Another way to assess crypto’s long-term prospects is to see if its key challenges can be overcome. The lack of regulation is a key challenge for centralized crypto services; However, many jurisdictions are either on the verge of adopting comprehensive regulatory frameworks or are actively considering how to do so. The security risks cannot be underestimated, although efforts are being made to lower the smart contract risk, improve the custody experience and reduce fraud. UI/UX remains particularly clunky, although many are working to abstract away the blockchain component, with efforts toward account abstraction, new primitives/utilities, mobile accessibility, and privacy/interoperability. And there’s a renewed focus on real utility versus Ponzinomics, all of which indicate that crypto will overcome these daunting challenges over time.
Total cryptocurrency value received from illegal addresses, 2017-2022
Source: Source: chain analysis, GSR
Areas with special promise: State-of-the-art areas may offer opportunities to onboard large demographics, which will have a positive impact on the industry. Zero-knowledge proofs, for example, will allow one to prove that a statement is true without revealing any further information, and will usher in cloud-scale decentralized computations, anonymous payments, and new identity constructs, to name a few. And within identity, a new decentralized paradigm will allow users to own, control and benefit from their identity and data with more privacy and security and without the need for central parties. Modular blockchain protocols separate and optimize each of the core blockchain functions of execution, consensus, settlement, and data availability to simultaneously achieve high security, speed, decentralization, and enable mass adoption. And decentralized hardware networks will incentivize physical infrastructure development, bring otherwise idle resources to life, and provide a worthy challenger to large infrastructure oligopolies.
Areas at the forefront of crypto innovation
Source: GSR
Diploma
The past year’s numerous risk events and precipitous drop in token prices have fully exposed the cryptocurrency’s shortcomings, leading to widespread despondency across the space. Still, we maintain that large price declines are normal and to be expected given the emergence of the industry, and that the price movements of the past two years have been driven more by sentiment and macroeconomic conditions than by a change in underlying fundamentals or the ultimate outlook for what crypto can become. Indeed, upon examining various blockchain/crypto analytics and indicators – use cases and benefits, mental models, underlying fundamentals, key challenges, and areas of particular hope – the future looks exceptionally strong. It won’t happen overnight as past episodes of technology adoption and changes in consumer behavior have lasted for decades, but the opportunity is enormous as global crypto users make up just 5% of the total population and cryptocurrency market cap is just 0.8% both stocks and bonds. So, despite the dreadful year of 2022, the future of crypto has never looked so bright. In short, we still believe.
This is a guest post by CoinMarketCap using GSR and has been edited for style. The original article was published here.
What is CoinMarketCap:
CoinMarketCap is the world’s most referenced price tracking website for digital assets in the fast-growing cryptocurrency space. Its mission is to make crypto discoverable and efficient worldwide by providing retail users with unbiased, high quality and accurate information to make their own informed conclusions.
Where to find CoinMarketCap:
Website | Twitter | Telegram | LinkedIn |
What is GSR:
GSR has ten years of in-depth expertise in the crypto market and a track record of making in-depth progress on behalf of its clients. GSR acts as a market maker, asset manager and active, multi-level investor. GSR sources and provides spot and non-linear liquidity in digital assets for token issuers, institutional investors, miners and leading cryptocurrency exchanges.
Where to find GSR:
Website | Twitter | LinkedIn |
Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers
Comments are closed.