Crypto Winter is here! When will it end and what will come after?
Winter is coming! Winter is coming! Have you been hearing this rising crescendo of warnings from value investors? Man the wall! Don’t let the wildlings through! Get out while you can???
Probably not, as the party was just too good. Then Luna collapsed, Celcius is in trouble, bitcoin is down a bunch and coin prices have came crashing down. The Crypto Winter is here. So what now? How long will this last? When will we go back to good times? Will we go back to the good times at all? Or is Crypto headed for a slow long death?
First, let’s put things in perspective. Crypto values have gone through this cycle before. 2018 was the last such crash. Bitcoin reached 18,000 at its peak then and then crashed down to 3000 where it languished for a while before picking up again for this next cycle. So, even at 20,000 right now, it is still higher than that peak.
Many ICOs were launched then and what happened to those coins who knows? So also many new coins have been launched since then, including joke coins, and so many will disppear into the ether once more as their blockchains generate little actual traffic and those who cashed out early laugh all the way to the bank.
Naysayers are tweeting in triumph, this is the end, it was all a Ponzi scheme.
They did say this during the previous cycle though, and bitcoin is, at least if you measure by the previous cycle’s low, still up 8x!
But there is some level of panic among the faithful as well, with Michael Saylor of MicroStrategy who has gone all in on government regulation!
There are apparently too many coins out there creating a 400 billion dollar(or more, who is counting?) unregulated trading market. It is all just too much freedom for even the traditionally libertarian bitcoin loving enthusiasts.
Still, Michael Saylor has a point. Bitcoin is the one crypto that has a natural limitation in its supply due to the fundamental nature of its algorithm. To understand how so read this article I wrote oh so long ago about how bitcoin is designed to mimic the mining of gold. Gold production halves every four years due to the finite supply of gold on this planet. So also it become harder and harder to ‘mine’ new bitcoin(i.e. solve the cryptographic algorithm to generate new coins) at roughly the same rate.
So….it is all a scam? Where is the value here? This is a good time to put on the value investor’s hat and take a closer look.
Does bitcoin serve as a hedge against inflation? What does the evidence show? Well, we are in a time of record inflation and bitcoin price has collapsed so the first glance suggests no. However, this does depend on the time frame you want to look at. If you take the valuation at the bottom of the previous cycle, then, as I wrote bitcoin is up around 8x and has definitely been a hedge against inflation.
So it depends on what we are comparing and if that seems sophistic and just an example of the greater fool theory, to some extent it is. Bill Gates is not the biggest fan of Cryptos for that reason, that you are just buying a hash in a shared database after all and hoping that some greater fool than you comes along to buy it at a higher price. So says Shibetoshi Nakamoto, one of the creators of Dogecoin.
Still, someone is currently paying ~21,000 dollars for a bitcoin, which is not an inconsequential amount of money. There are a lot of greater fools out there it seems, and value at any given time is ultimately what the market is willing to pay at that time.
What about Ethereum and smart contracts? Don’t they have good value? Smart contracts are a great conception and work great…until they don’t, as we saw in the Terra Luna crash
A singular much celebrated property of the blockchain and the smart contracts that go on it is that it is immutable. Once you put something on the blockchain it can’t be changed. This is great, it helps create trust, until someone finds a flaw in the contract and exploits it all the way to Valhalla and there is nothing you can do about it.
NFTs? What real about them? You can read my previous article where I put NFTs on trial to learn more in depth. TLDR version, they are useful as collectibles, offer some help in selling digital art in the physical world, and can be very useful as proofs of ownership in the right circumstances, and the primary proof of ownership in the metaverse. There is also a lot of hype and noise around them.
You have to separate the wheat from the chaff and the Crypto Winter will be doing quite a bit of that. Still, there is one use case that if any Crypto scheme can solve, it would demonstrate its value definitively and forever and all the naysayers will never say another word.
This is the use case of everyday ordinary credit card payments. I went to eat Japanese a few days ago. They insisted on a 20 dollar minimum payment for the card. Hey, it is tough time and anything saved helps. Why pay the 2-3% credit card fee?
Surely this is a space ripe to be disrupted? Whichever processor you use, Square, Stripe, PayPal you are forking out 2-3% of your sales in fees. Make a million dollars in sales and you are going to be out 25K.
If Cryptocurrencies make moving money easier surely there must be a crypto product that can do this money transfer between me and the restaurant owner at a lower cost?
So Crypto creators, enthusiasts, have at it! Figure out a way to make day to day payments work. Here are the requirements
As the restaurant owner I want
a very simple, easy way for my customers to digitally pay me, it could be tapping their phone or swiping a card, whatever it is it has got to be simple which means…
No complicated addresses to be passed back and forth
One cash register app is my max toleration for software tools. Neither the customer nor I should need to install any extra software on our phones/cash register apps (extra software like say, metamask)
The money should transfer instantly so I can see that it has been paid and don’t have to worry about it thereafter.
I can issue a refund or a partial refund in the event I need to.
The money paid to me shouldn’t fluctuate in value too much as compared to the currency by which I have to pay taxes, otherwise I am at risk of big losses.
I should have an easy way to convert the money I receive into that said currency so that I can pay my taxes as well as pay for anything else that requires that currency.
The money being transferred shouldn’t come from money laundering and other criminal activities.
And I want to pay way less fees than the 2-3% I pay right now.
Please note that I as a restaurant owner, don’t really care about keeping the transaction private. I run a legitimate business providing great food at good prices to my customers. I have to and plan to report all of my income for tax purposes. Instead of secrecy, I would actually much rather the tax agency not only know all of my business transactions beforehand, but that they compute my taxes and send me a bill/refund as long as it is within a reasonable range. What a relief tax season will be then!
As a customer, I want to
Pay my restaurant tab with a tap of a phone/swipe of a card
Be able to pay from a credit line versus my savings.
There, your basic user requirements. Crypto enthusiasts, this should be easy to solve for? Get cracking!
As for the current Crypto winter, the down cycle usually lasts about 2-3 years before we go on wild rides again.