Bitcoin Winter is Coming. Will You Survive?

Bitcoin winter
Bitcoin winter is here. The weak will die and the strong will eat their bones

The cryptocurrency market is entering very rough waters. But the industry and its creative energy are here to stay.

It’s been a whiplash week for us at CoinDesk. On the one hand, as an organization, we just had a huge win at the Consensus 2022 conference that ended on Sunday. The conference was a four-day conference that proved how strong and widespread the interest in cryptocurrencies is. If I may pat my CoinDeskers pals on the shoulder, it also proved once and for all that we are the media organization at the center of it all.

 

On the other hand, of course, in just two days after the Consensus ended, we saw an incredible rout in the cryptocurrency market, with both Bitcoin (BTC) and Ether (ETH) down about 20%.

There are now signs that the centralized lending platform Celsius Network is experiencing a liquidity crunch and may even be insolvent – arguably the “other shoe in” after the LUNA/UST unwind. Celsius’ problems in turn have traders worried about stETH, an important bond-like token associated with the Ether 2.0 merger. three Arrows Capital is also apparently having liquidity issues, and to top it off, cryptocurrency exchange Coinbase just laid off 1,100 people.

There’s a lot to say about this moment, and we at CoinDesk will be saying all of that in the coming weeks and months as we help you navigate the cryptocurrency crisis. But before the dominoes start to fall in a massive way, I plan to make this column about the magic of “consensus.” I still think it’s important because the vision and passion on display last weekend in Austin, Texas, is exactly how we’ll find our way out of this mess.

A big tent

Most importantly, The Consensus is a big tent. Huge, in fact, literally and figuratively. We attracted 17,000 attendees to the conference itself and another 3,000 to the satellite event. It was South by Southwest in the cryptocurrency space, along with the Disclosure and Big Boi concerts. Next year will be the same.

But more importantly, the breadth of programming and perspectives was incredible. For example, I had some free time on my way to moderate a panel, so I stuck my head into a random auditorium – and there was Facebook whistleblower Frances Haugen, who is hardly involved in cryptocurrencies except for a shared concern about data collection.

 

crypto winter

I saw a conversation between sci-fi author Neal Stephenson and technologist Jaron Lanier with CoinDesk contributor Leah Caron Butler. I myself interviewed a bitcoin researcher at Baylor University and also had a delightfully dysfunctional conversation with Chris Gabriel (aka MemeAnalysis) about memetics, Freud, black magic, and the CIA.

 

It seems clear that cryptocurrencies are becoming the Schelling Point for all types of dissatisfaction with the status quo. A Schelling point is, very loosely, a symbol, website, technology or other focus that draws people together without clear communication or coordination. crypto has captured the imagination of society and become a site of transformative change – even if we are not sure where it is headed.

 

Collapse?

Here we get the news of a market collapse. My heart goes out to those who are losing their jobs now, and to those who will lose their jobs in the coming days and weeks. I’ve been there – I lost my job because of the 2018 cryptocurrency meltdown.

But there are also huge positives to the decline of cryptocurrencies. The failed products – especially Luna and Celsius – have always been essentially illusory, driven by inflated, unsustainable returns. It is now increasingly clear that the “profits” made by depositors in these systems are essentially a game of musical chairs using venture capital funds.

Meanwhile, Coinbase has admitted that it made a major strategic mistake by hiring too quickly, despite the brutal cyclical nature of the exchange business, as I noted when it went public in 2021. And Three Arrows, a highly influential venture firm, seems to have invested heavily in some of the most speculative and risky projects on the market.

I know it’s a terrible cliché, but it’s still true. All this carnage is, in fact, good news.

 

Starting over

While we will certainly see more unwindings, withdrawal freezes and mysterious silences in the coming weeks and even months, the market collapse will have the worst impact on the companies and investors who made the wrong decisions. As cryptocurrencies have expanded and been hyped over the past two years, there has been a proliferation of fundamentally worthless projects minting their own ephemeral tokens and convincing uninformed retail investors and high-profile senior hedge fund managers that they have value.

In every expansion cycle, this garbage creeps into cryptocurrencies. The current decline is removing its holy fire, much like an old forest needs a good fire every once in a while to renew itself. Getting rid of the fake junk built on hype and personal adoration means that while there may be less money sloshing around in the next year or so, a greater percentage of it will go to credible projects.

Capital is available

Those looking to build something on top of a solid idea will thrive in this environment – especially because, unlike in 2018, it seems likely that there will still be plenty of venture capital available. As an example, OpenSea, which is considering generating $20 billion in NFT sales by 2021, was founded in 2017 and has been building heavily through 2018 and 2019. This is not just during the dormant period of cryptocurrencies, but before most people had even heard the term non-fungible tokens.

In the coming bear market (well, I’m now ready to call it “cryptocurrency winter”), there will be other OpenSeas, other Ether Name Services (ENS), other really useful and profitable services or technologies developed out there. The best way to survive, or thrive, will be to do these builds and position yourself to reap the benefits of the next big rally.

And remember, these downturns are always shorter than they seem. Personally, less than two years after losing my cryptocurrency job in 2018, I’m back in the industry – and having more fun than ever.

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