Is crypto dead ? – 7 important facts you should know to judge that
Is crypto dead? A question that comes up again and again. The best way to judge this is with facts and data.
1. Understanding the market cycles
Market Cycles
The first thing worth looking at is the progression of market cycles. These apply to many markets, not just crypto. Market cycles usually follow a certain pattern, which is strongly influenced by the human psyche. Especially in new markets with relatively low market capitalization, these market dynamics play a major role and show up in the form of high volatility.
Market cycles can be roughly divided into 4 phases. There can be deviations in each phase:
Accumulation phase: The accumulation phase begins when the market has experienced a sharp decline or crash. In this phase, the market runs in mostly sideways, without strong movements. The market volume is usually lower than average. Due to the sharp decline, many participants have lost interest in the market. Here, the transition from bear market to bull market often takes place quite unnoticed.
Markup phase: The accumulation phase is followed by the markup phase. In this phase, there is often a sharp rise in the price of an asset. This phase is usually referred to as a bull market.
Distribution phase: The distribution phase is the end of the bull run. In this phase, market participants divide into two groups: those who believe that “the best is over” and those who believe that “the best is yet to come”.
Markdown phase: In the downward phase, the bubble finally bursts and triggers a sharp drop in prices. The bear market takes its course. This phase continues until the depression sets in and many investors are no longer interested.
Crypto Cycles
The following two Bitcoin charts illustrate the course of cryptocurrency market cycles:
This chart shows the price trend of Bitcoin from mid-2017 to mid-2019. A textbook progression according to the market cycles.
And this price trend of Bitcoin from mid-2021 to mid-2023 also take the courses of market cycles; there was only one so-called “double Top” in 2021. But the logic remains the same.
It can therefore be stated as a fact that the cryptocurrency market is also subject to market cycles.
“Crypto is dead” is a typical quote in a Markdown phase. That’s exactly how this phase feels. It lasts of relatively long, many have suffered high losses and relatively little price movement happens. BUT: If you have the market cycles in mind, it is the phase where you can best enter the market. This is when you get the best prices.
When many believe “crypto is dead” the cheapest buying prices and best entry points arise.
2. Crypto performance – a comparison with other asset classes
Another dimension to decide if “crypto is dead” is the comparison between bitcoin and other asset classes. How has Crypto performed compared to other asset classes in recent years? Has the “Crypto-is-dead phase” been there in the past? Bitcoin is representative of the entire crypto market here because there are almost no other crypto assets for which data is available over 10 years and which have market significance.
In the annualized performance from 2011-2021, it can be seen quite clearly that Bitcoin has significantly outperformed every other asset class. It has outperformed the second-best asset class, the US Nasdaq, by a factor of 10.
However, it is also clear to see that there have been two crypto crash years with two crypto-is-dead years in the past, namely 2014 and 201. In these two years, crypto market was “felt” dead because the price had plummeted extremely. In 2022, the bitcoin price has also seen a 60-70% drop. Another perceived “crypto is dead” year for the crypto industry.
But in a 10-year comparison, Bitcoin was the clear performance winner, despite these strong price setbacks. Let’s keep in mind, there are years when Crypto is seemingly dead, but still it has outperformed every other asset class by a factor of 10 over the 10 year period from 2011 to 2021.
3. Growth of the crypto markets
Another fact worth looking at in order to understand how a market is doing is the growth of a market.
The crypto market has grown significantly over the last 3 years. The number of users almost tripled from the end of 2020 to the end of 2021. This strong growth is certainly also due to the sharp price increases in 2021. When prices rise, this attracts more users.
Although in 2022 crypto asset prices have gone down between 70-90%, the number of users has continued to grow. From the end of 2021 to the end of 2022, user numbers grew by 36% percent, despite the sharp price corrections.
Compared to the growth in Internet users in the late 1990s/early 2000s, the growth in crypto (WEB3) users is even stronger.
On the graph, you can see the strong growth of Internet users and the even stronger growth of crypto users. Do these numbers show that crypto is dead?
4. Adaption of new technologies
The spread of new technology always follows a certain pattern. The so-called S-curve adaptation.
S-curve adoption for new technologies is a concept that describes the typical pattern of adoption for new technologies. It is based on the idea that the introduction of a new technology follows a predictable pattern of adoption. The S-curve begins with a slow rate of adoption, then increases rapidly, and slows again as the technology reaches its peak.
The following charts illustrate this trend using cell phones and broadband Internet as examples.
Each phase has lasted 14 years here. The main growth always takes place in the mainstream adaptation phase. Here, the growth in new users of the technology is extremely high.
In the rollout of broadband Internet, each phase has taken 8 years. But here again, quite typical for the S-curve spread of new technologies, the mass adaptation always comes in the mainstream adaptation phase.
The spread of cell phones and the expansion of broadband Internet were decisive preconditions for the entire Internet economy and WEB 2.0. Without these two technologies, the use of the Internet in its current form would not have been possible.
Propagation according to S-curve logic is also taking place in the Crypto space. This can be seen exactly in the example of Bitcoin.
Here, each phase lasts about 10 years. In the first 10 years, Bitcoin was only used by a few people and was often dismissed as a useless technology. For about 2 years, there has been a significant increase in users per year. The inflection point, as marked in the chart, was in 2020.
So it is important to note that the introduction of new technologies follows a certain pattern, the S-curve logic. In the early adopter phase, a new technology is often declared dead or useless because the technology is still in its infancy and further adjustments are taking place. Therefore, the impression is often mistakenly created that crypto has disappeared into obscurity and is dead. But this is not the case. The spread and new use cases often emerge unnoticed by the general public.
5. What problem does crypto solve?
To decide whether a technology has long-term benefits, it is important to understand what problem it actually solves.
The Internet has solved the problem of information processing and distribution in a new way. Because of Internet technology, it was possible to distribute and share information worldwide within seconds via mail, websites or social media platforms. This was a game changer and fundamentally changed our world.
But what problem is solved by Crypto and Blockchain technology?
Ownership
Quite simply, the blockchain solves the transfer of value, just as the Internet has reshaped the transfer of information. Previously, any file on the computer could be duplicated and sent. Ownership and access to assets is a big problem. There is always the problem of proving and transferring digital things in an immutable and trustworthy way. The blockchain solves the problem of trust.
It is a distributed ledger technology that allows for secure, immutable, and transparent transactions. It eliminates the need for a third-party intermediary, such as a bank, to verify and validate transactions. This makes it possible for individuals and businesses to securely and efficiently transfer value and information without the risk of fraud or manipulation.
The term WEB3 represents the next evolution of the WEB world, the digital ownership of things.
Blockchain enables ownership of digital assets and their secure transferability. Until now, this was not possible because files could often be multiplied at will and could only be transferred with the help of trusted intermediaries.
Tokenization
In addition, blockchain technology allows all things to be digitized in the form of tokens. Tokens are digital assets. Things that were previously difficult to digitize can now be digitized as tokens. Furthermore, physical objects, such as real estate, can be broken down into small digital units and thus better distributed and made transferable. A blockchain is a digital asset platform.
The brings eonormous advantages:
Fractional Ownership
Easier Transfer & Settlement
Built-in Compliance
All three benefits enable huge cost reduction potentials and make new business models possible.
6. Crypto Regulation
In the early years, crypto was uncharted territory for everyone, both states and users. There was no regulation. No one knew how to deal with the new technology and its possibilities. A lack of legal regulation always brings uncertainties with it, and many users are therefore afraid of contact. Companies and especially large institutions with strict compliance requirements cannot invest in such a market or use these technologies because it is almost impossible under the law.
But this has changed over the course of the last few years. Many states have dealt with the topic and the new technology and passed a legal regulation on it. At the beginning of the year 2023, the EU created an overarching legal framework with MiCa, which provides a good basis for regulation.
The following was thus created:
Uniform legal framework for crypto-assets markets in the EU
Operations with crypto-assets will be traced in the same way as traditional money transfers
Enhanced consumer protection and safeguards against market manipulation and financial crime
“Parliament endorsed the first EU rules to trace crypto-asset transfers, prevent money laundering, as well as common rules on supervision and customer protection.”
This was an important milestone for legal certainty in dealing with crypto and will enable companies to use this new technology in a legally secure manner.
Would that happen if Crypto was dead? The answer is clearly no! Certainly, clear legal regulations are still missing in some countries. The USA in particular is currently lagging behind and cannot agree on legal standards. But that will also happen in the next few years. There will always be countries that adapt faster and others take longer. But as an important fact remains to be noted, the legal regulations are coming and help the legally secure use of crypto.
7. Crypto as an asset class
Crypto is becoming an increasingly important asset class for investors because it offers a number of advantages over traditional investments. Crypto is decentralized, meaning it is not controlled by any one entity or government, and it is highly liquid, meaning it can be easily converted into cash.
Besides these advantages, however, it is the low correlation to other asset classes that makes crypto significant for investors.
Correlation
Low correlation of assets is important for a successful portfolio because it helps to reduce risk. When assets have low correlation, it means that the performance of one asset does not necessarily affect the performance of another asset. This diversification of assets helps to reduce the overall risk of the portfolio, as the performance of one asset is not likely to affect the performance of the other assets. By having a portfolio with low correlation of assets, investors can reduce their risk and increase their chances of achieving their desired return.
This chart clearly shows that Bitcoin, as a representative of crypto assets, does not directly correlate with traditional asset classes such as stocks, bonds and commodities. A value of Zero means that there is no correlation. The correlation of Bitcoin to all other asset classes is often close to zero.
Funds managers are desperate to find assets for portfolio diversification. The correlation values of Bitcoin are an huge opportunity for fund managers to include this asset class as part of the portfolio.
For this reason, the more stable the regulatory environment for crypto-assets is, the more demand and importance crypto-assets will have for funds.
Summary: Is Crypto dead?
In conclusion, cryptocurrencies sometimes seem to be dead, but the resurrection is breathtaking.
The 7 facts presented show that crypto is very much alive. Adaptation into use cases is progressing rapidly, user numbers are growing faster than the Internet, and most importantly, the technology is solving a fundamental problem of Internet economics. And that matters. Use cases, user growth, and solving problems give new technology its raison d’être. As we have seen, such adaptation usually takes the form of S-curves.
Anyone who seriously claims that crypto is dead is overlooking fundamental facts about this new technology. Crypto is one of the most important technology trends of this decade.
If you miss out on investing in the upswing, you’re probably missing out on one of the best investment opportunities in decades. New technologies always have their dead moments. Those who have been around long enough can still remember the bursting of the dot.com bubble and the 2008 financial crisis. What happened to the leading Internet companies and their stock prices during that time is history and has fundamentally changed our economic world. The same will be true for the crypto industry. Even though many continue to believe that crypto is dead.
FAQ
What is Crypto?
Crypto is originally the abbreviation for cryptocurrencies. Nowadays, the term is usually used more broadly to refer to applications that use blockchain technology. Increasingly, the term WEB3 is also used, which encompasses the new Internet economy using blockchain technology.
What ist WEB3?
WEB3 is the new term for the further development of the Internet economy. The first version was WEB1 with the reading of website, WEB2 was the interaction (data exchange) over the Internet and WEB3 includes the ownership of digital objects.
