What Would it Take for Crypto Winter to End?

Photo by Hrvoje Abraham Milićević

It is more than fair to say crypto took a major sucker punch this year. The combination of a bear market, several project failures, and the Damocles sword of government-led regulation and bans plummeted valuations and wiped out entire communities of retail investors from the market.

Sadly, many of these average-Jane and average-Joe investors burned their fingers and are likely to stay away from crypto forever, with the chance of some of them re-joining when we are about to witness the precious blossoms of upcoming crypto spring. To re-establish confidence with people who lost their savings and to attract interest and willingness to invest some hard-earned cash, there is a new narrative needed, as the financial narrative along the get-rich-quick-dreams failed to stick.

So, before we look at the factors that may re-introduce average buyers to crypto again, let’s have a short grasp on the major market happenings that plummeted crypto markets this year:

Overall market sentiment

In a tight macroeconomic situation with decade-high inflation numbers in U.S. and Europe, war on European soil, and energy prices going to the moon, people need more cash for everyday necessities and thus, are less leaned towards the high-risk investment that crypto is of now. Depleting market valuations only confirmed it’s time for people to pull their money out of crypto, leading to further decline. It shouldn’t be underestimated here that especially Bitcoin failed hard as an inflation hedge, which was a big part of the “Digital Gold” narrative so far, wiping out confidence in the project from average investors.

Another punch from the investment side is the downfall of the NFT market. Overall trade volume is down and valuations are as well. For sure, some of the famous projects like Bored Ape Yacht Club or CryptoPunks might survive and hold to their valuations, but many of them will be total write-offs. Remember when Jack Dorsey’s first Tweet was sold for USD 2.9mn? In April 2022, it was up for sale again and reached a staggering maximum bid of USD 280. This will serve as an example of how people would refrain from getting their feet wet again in the NFT world as a store of value.

Project failures

The infamous blitz crash of the Terra network, leading to the de-pegging of the TerraUSD stablecoin as well as the downfall of the native Luna token was a wake-up call for the whole market. Rumor has it this was part of a concerted attack by big players of the TradFin sector looking to undermine trust in the whole crypto world. The crash led to many people losing much (if not all) of their savings when using a “safe” crypto construct called an algorithmic stablecoin. Numbers are circulating of around USD 60bn of investment value burned in this phenomenal crash.

Quickly followed by another big name that failed was the Celsius Network, which announced to freeze customers' assets by June 13th, 2022, already leading to turmoil. Roughly one month later, Celsius filed for bankruptcy and was accompanied by another major crypto-lending platform (Voyager,) which also filed for bankruptcy. Not only did these platforms fail, but there is also a light smack of nobbling as recent sources claim that the Celsius executives pulled 10mn worth of crypto out of the company just weeks before the freeze announcement.

Regulatory threats

The ongoing lawsuit between Ripple and the US Securities and Exchange Commission also had its fair share of influence, especially around the Ethereum merge event. In a nutshell, the SEC claims that Proof-of-Stake currencies are securities and thereby subject to rigid financial market regulation, which might have dampened the enthusiasm around the merge a bit.

Another ongoing struggle was the US sanction on the famous crypto mixer TornadoCash, which led several big exchanges to block corresponding wallets from interacting with TornadoCash and thereby, violating a self-proclaimed main characteristic of crypto: permissionless access.

Some of the market turmoil earlier this year, namely the Terra USD de-pegging as well as the Celsius crash poked the leviathan that is the federal government. One of the first measures might be a temporary ban on algorithmic stablecoins following the Terra USC crash.

When will spring finally come?

So, after indulging in negative market sentiments, let’s discuss how the next bull market can incinerate with retail investors massively coming back to crypto. As we have seen, the financial narrative failed to stick (for now,) so we would need a new narrative that introduces another use case of blockchain technology apart from the financial utility.

Decentralized File Storage

One of the candidates might be decentralized file storage, as it holds significant advantages over common server/cloud solutions. Not only are centralized providers prone to being hacked and thus, valuable information part of bigger criminal schemes like blackmailing to publish personal data, one always has to trust the entity he committed his data to. The user must trust a central entity to not cut off his log-in and remains in operation. Decentralized file storage solves privacy and trust issues among others, thus providing a valuable use case for average users. Providers of decentralized file storage solutions are already active with projects like FileCoin, IPFS, and Storj.

Social Media and the Creator Economy

The best shot at providing a new narrative might have decentralized social media, as it has such a vast market potential. Billions of people are using platforms like Facebook or TikTok, generating these behemoths hundreds of billions in ad revenues, all while creators are rewarded with vanity metrics like followers and likes. Web3 social media will have the power to make a lot of things better for creators and users than the old guard.

On the DESO blockchain with its adjacent apps, you can support your favorite creators directly by rewarding them with the native network token ($DESO) or by investing in their creator coins to unlock special benefits. Multiplied with the power of desktop and mobile apps like Diamond, Desofy, and Pearl, DESO already has many points of contact to get people in touch with crypto again. They even have a login functionality using a Google account, which makes the barrier of entry as low as any other online platform. By attracting frustrated social media users and creators, decentralized social media has the potential to bring back average users to the blockchain and token topic.

But this is only the tip of the iceberg: With the DESO-native DAODAO platform, anyone can start up their own DAO to fund a project combined with a social stream. You’ll find NFT projects there as well as utility projects who are investing in assets to yield a positive ROI, all accessible for investments with the user’s $DESO balance. This ecosystem, combining social media with great functionalities to support creators as well as a gamified investing experience has the chance the get people back into the thought patterns of crypto by using native network tokens and getting back used to thinking in wallets and tokens.

Final Thoughts

The recent bear market and ongoing threats from regulation authorities as well as the crashes of several projects burnt the land for many average crypto investors. With the current crypto winter sentiment, the world needs a new narrative to bring a big portion of people back into crypto again.

My best guess is decentral social media will be this new narrative. Once accustomed to the use of blockchain and decentralized tools along the native network tokens again, people might be more willing to work with currency use cases as well.

What do you think? I’m eager to hear your thoughts on this matter!

Originally published on Zirkels.com, a decentralized content publishing platform powered by the DESO Blockchain. DESO is the new standard for social media on web3, so give yourself a head start in the upcoming revolution and sign up here.