Crypto market sentiment has turned decidedly bearish with on-chain analytics pointing to further losses and prices continuing to tank.
Total crypto market capitalization has contracted by $150 billion or around 7% over the past 24 hours as the selloff accelerates. Crypto Twitter is awash with talk of a bear market and industry leaders are tending to agree with the narrative in greater numbers.
Ethereum co-founder Vitalik Buterin said that many developers would welcome a crypto winter at the recently concluded ETHDenver event, while Huobi co-founder Du Jun reckons there will be no bull market until the end of 2024.
The rest of 2022 and most of 2023 could become another big freeze for crypto asset prices just as 2018 and 2019 were but what would be the fallout of such a bear market.
Fallout of a crypto bear market
Head of research and General Partner at Spartan Capital, Jason Choi, has run through some potential scenarios that could arise from a prolonged bear market. On Feb. 22, he Tweeted that “not everything will last in crypto,” before adding that the bull run has been “catalyzed by an easy monetary environment.”
He said that leveraged DeFi yield platforms were one thing to emerge from the bull market but there were not enough buyers to support “inflationary shitcoins minted out of thin air to finance high yields.” Going into a bear market, DeFi yields will be much lower and driven by demand, he added.
Play-to-earn (P2E) economies may also be shaken up if they are unsustainable. Choi partially blames the Axie Infinity hype for all of this, and the rafts of clones that followed it. AXS tokens are currently down more than 70% from their frenzy-driven peak in early November.
“Without the impetus of a bull market, P2E games will become less profitable than they are today.”
Other things he did not think would last included the current model for guild-run scholarships, fervor for DAO tooling, marginally improved versions of DeFi incumbents, and Layer 1 networks with no massive treasury.
Only the strong survive
As was the case following the previous crypto winter, many budding crypto and blockchain projects at the time fell from their lofty perches. Some of the more notable ones that were in the top ten in terms of market cap this time four years ago include Bitcoin Cash, NEO, Stellar Lumens (XLM), EOS, and IOTA. Today they are way down the list and largely out of the scope of investors new to crypto markets.
It stands to reason that some of today’s crypto darlings are likely to get severely mauled by the bears in the coming winter. At the time of press, total market capitalization had tanked to around $1.73 trillion, its lowest level since Jan 23 and is likely on the way to head lower this time.