We are in the middle of a new crypto winter

By Alessandro Albano

Investing.com – The , and the cryptocurrency universe in general, are not having a particularly happy time. From an all-time high of $69,000 hit in November 2021, the world’s largest market-cap crypto is trading just above $20,000, an important psychological threshold that, if broken, could mean a downturn. fall as in 2018.

With the collapse of TerraUSD, the bear market in equities and the geopolitical environment, the digital asset ecosystem is unmistakably facing a new “cryptocurrency winter”: a long period of low prices. At the same time, abnormal amounts of venture capital are flowing into the sector. “Balancing these two realities is difficult,” wrote Benjamin Dean, director of digital assets at WisdomTree, in a note.

In terms of market capitalization, the crypto galaxy has fallen from a peak of over $3 trillion to less than $1 trillion. In comparison, specifies the expert, “between December 2017 and June 2018, the sector contracted from 850 million dollars to 250 million dollars, a drop of more than 70%.”

“The whole industry is showing clear signs of cost containment,” adds Dean. “It’s news this week that BlockFi, a cryptocurrency platform for institutional and retail traders, is gearing up for a 20% reduction in its workforce; while other big names in the industry (like Coinbase (NASDAQ:) had also previously announced staff reductions and hiring freezes.”

However, we must remember where we are starting from. There was more venture capital investment in the crypto/blockchain space in 2021 than in all of the previous six years combined: $21 billion in total. In the first quarter of 2022, investments increased again, by another $10 billion. “Just a fortnight ago, venture capital firm Andreessen Horowitz announced that it had successfully raised $4.5 billion to launch a new fund on ‘web3’ (the company’s slogan for crypto assets /blockchain)”, underlines the manager.

It may also be instructive to examine the destination of this flow of capital. Over the past six months, Dean points out that “an average of around 36% of streams were for non-fungible tokens (NFTs) and games.” In second place, in terms of percentage, is decentralized finance (DeFi), which attracted around 16% of flows.

“A dissonance emerges from the analysis of these developments”, writes the expert in conclusion. “On the one hand, the macroeconomic outlook could not be more pessimistic. On the other hand, it was not expected that digital asset projects would be funded on such a scale. 12 to 18 months Those who manage to find business models that can generate revenue – and attract users – will create the next wave of opportunity in the digital asset space.However, there will be many casualties in along the way, as it has already been in this decade of digital asset evolution.”

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