Digital asset platform Paxos is out with a white paper entitled “How the Crypto Winter May Help Save the Digital Asset Economy.” The thesis of the document is that all of the recent fraud and failure within the crypto industry will end up flushing out the bad and leaving the better behind to innovate, grow and thrive. Paxos describes the current crypto winter as not like the past digital asset bear markets:
“We are not in the first “crypto winter.” In November 2018, cryptocurrency markets lost $70 billion in market capitalization, an exclamation point on a year in which they lost $700 billion. Winter also came for both Bitcoin and Ethereum, lasting until 2020. Overall crypto market cap plummeted from a high of $821 billion to a low of $100 billion in late 2018. 2021 brought a pandemic rebound, an NFT summer, a GameFi explosion, celebrities shilling for crypto on screens everywhere, Bitcoin at $60,000 and venture investment rained cash onto the ecosystem.”
At one point, the aggregate crypto market cap neared $3 trillion. Today, it hovers around $1 trillion after bottoming out at around $800 million.
Paxos believes that the collapse of FTX, the TerraUSD debacle, and the implosion of Celsius (among other challenged crypto platforms) have led to growing calls for regulatory action, which will inevitably lead to actual legislation that will provide clearly defined rules. Congress is expected to move on legislation – starting with stablecoins and then moving on from there. Paxos predicts that regulated stablecoins are poised to thrive as fully collateralized digital dollars are a superior transfers and payments mechanism.
While funding of crypto firms declined every quarter of 2022, with 2023 heading in the same direction, activity and interest remain as investors focus on Web 3 and legacy financial services firms integrate more blockchain technology. Bear markets are historically good opportunities to invest.
“… moving a traditional industry and multiple factions within that industry into brand-new sets of technology takes time. Implementation of new financial infrastructure needs time for planning, strategic development and deployment. What many enterprises do wrong is wait; wait for the winter to show signs of subsiding before taking action. And unfortunately, activity at the point of industry ascension is often too late to beat the early innovators.”
While not declaring the end of the crypto bear, Paxos anticipates a crypto spring that will be a healthier ecosystem with more oversight, defined rules, and fewer fraudsters. Good riddance to FTX and other nefarious characters.
The Paxos White Paper is available here.