With Crypto Winter Upon Us, it's Time to Ask the Tough Questions

The crypto markets are on the brink of a long, bitter winter (if it hasn’t already happened) and everyone is either going bust or carelessly tweeting about “buying the dip”, in a last-grasp attempt to inject some feeble optimism into an already tattered market.

On Wednesday, the Federal Reserve raised interest rates by 0.75% – the largest hike since 1994. In anticipation of this announcement, Bitcoin (BTC) fell by nearly 9%, grazing the US$20,000 mark before paring losses in what was likely a dead cat bounce. The world’s largest cryptocurrency is on a nine-day losing streak, the longest since 2014. On the other hand, Ethereum (ETH) almost gave everyone a heart attack by very nearly falling below the US$1,000 mark.

Cryptocurrencies have always been known for their volatility, and the markets have been on a downward spiral since last year, when the Fed first announced rate hikes. But this time it feels different because cracks in the industry itself are beginning to show.

Recent events such as the Terra implosion have cruelly exposed the long-unaddressed vulnerabilities of the decentralised world, causing widespread panic and irreversible financial losses. Stablecoins, algorithmic or not, are becoming just as volatile as their “non-stable” counterparts, with many suddenly doubting their long-term viability.

Read more: Stablecoins: What Are They Good For?

For example, doubt’s over Tether’s reserve-backed stablecoin USDT have resurfaced, causing over US$1.6 billion in redemptions over the past week. Three days ago, Tron’s US$700 million USDD stablecoin lost its dollar peg and has not managed to “re-peg”, despite founder Justin Sun’s pledge to deploy US$2 billion in reserves to defend its stability. It all sounds like the Terra/Luna fiasco all over again.

Major crypto firms, some of which do not have a “war chest” like CZ’s Binance, are frantically reducing their headcount, despite what seemed like the start of a new and promising industry just months ago. There are now growing concerns over a potential contagion, spurred by liquidity issues on major lending and borrowing platforms such as Celsius and Three Arrows Capital (3AC).

This might seem like a bold claim, but perhaps the crypto bubble is finally bursting.

Yes, this correction can be attributed to macroeconomic conditions which have sapped risk appetites, but the promise of a more “decentralized” and “equitable” future is evidently still a work in progress, despite what the industry has been trying to sell.

Bitcoin, supposedly a global currency and an inflation hedge, is down a whopping 68% from its all-time high of US$69,000 just seven months ago. Ethereum is plagued by high network fees, and the only things that are being built on it right now are complicated DeFi protocols and NFT market places selling the promise of a “creator economy” where “artists” create worthless jpegs just for them to be flipped. None of the other newer protocols have really taken off yet, despite their promises of being “Ethereum killers”, and the metaverse is starting to look like a 2D excuse for venture capital firms and big corporations to capitalise on the “Web3 is the new internet” hype train.

Read more: Is Web3 Just Web2 in Disguise?

It’s probably going to be a protracted bear market, which means that according to the crypto community – which never fails to put a positive spin on everything – it’s the perfect opportunity to “build”. Numerous Twitter and LinkedIn posts by the industry that are encouraging the “building” of new projects (but at the same time shilling their own projects) have popped up and that’s expected.

Crypto winter is the best time to develop legitimate projects, and it’s when investors will really be able to determine which are the projects that can survive even in a bear market.

But it’s also the time to buckle down and really ask ourselves some tough questions. Are big corporations really into crypto for the tech? Have we all been duped into believing that we’re ready for a decentralized Internet just because we can easily make bank from it for now? What are some of the applications of blockchain technology apart from cryptocurrencies and NFTs that we have not yet explored?

“Obviously, expensive digital images of monkeys are going to improve the world immensely,” said Bill Gates recently. It’s going to be a long winter, so get comfy, put your feet up, and have a think about what the industry might look like come spring.