For nearly a month, each week seems to be bringing worse news for the crypto community than the previous one. Just a couple of days ago, it became apparent that BlockFi is the latest major company that is hitting the floor of the boxing ring and throwing in the towel. The same business decided to declare bankruptcy, as it was drastically tied to the FTX exchange. Its downfall eventually reached the BlockFi corporate coffers as well, resulting in yet another cryptocurrency implosion. There is a crystal certainty that this is by no means the end of the same tale and that other companies are going to fail in a matter of months, if not weeks.
The crypto prices and the overall market cap somehow managed to stay afloat after the BlockFi fiasco, but the new hits will likely be just as brutal and the steam to keep the hounds at bay is fizzling out. As all of this takes place, many are trying desperately to define clear and concise narratives about how the same took place and what made the markets turn southwards in such a drastic and clearly permanent fashion. The explanation like always is both complex and segmented, but still can be broken into a number of clear notions that all managed to do their part in pulling the crypto markets to a state of cryptocurrency winter that will not be over soon.
Broader Economic Context
The cryptocurrency field is a risk asset that has benefited greatly from the government stimulus plans which funneled money into their respective economies. That took place in the early days of the COVID-19 pandemic and the fear of a long recession caused by a slowdown in all manner of economic activity pushed the states to spend on their industries and citizens. The same came about after a whole decade of what the economists and finance experts call cheap money, where the US FED deliberately kept a very low-interest rate that was aimed to encourage people to spend and invest, instead of taking their money and saving it.
With that approach, investors of all kinds, from thrill-seeking esports players with some winning pools they were ready to put into a big gamble to even otherwise safe and cautious pension funds, decided to start making ever-bigger bets. These bets also came with a growing level of risk. Here, the crypto domain was very much blessed with an excess of cash that went into things like bitcoin’s BTC token, and a range of other ventures as well. However, when the inflation rate began climbing and influencing negatively how people actually live in the US, the FED began cooling the otherwise artificially hot economy.
FOMO and Media Exposure
Cryptocurrencies of all kinds counted as a whole and compact entities, have a predictable system of exchanging phases. These phases make up a cycle that is usually self-reinforcing. A rise in the value of crypto will enforce others who plan to invest in it. Others see this and feel that they are missing out. This is the well-known problem of the so-called Fear of Missing Out and it plays a major role in the acceleration of the crypto bull cycles. NFL legends like Tom Brady begin at that point promoting ventures like FTX and even take an active role in the functioning, acting as brand ambassadors or board members. That is the perfect addition to the rising prices and the bull pressure – celebrity endorsements.
Back in 2016, it was easy to miss the expansion of the crypto market as many were completely oblivious to it. But, in 2021, massive entertainment, business, and sports names began pushing a range of projects. Kim Kardashian, Larry David, and Matt Damond are just some of the names that put their weight behind cryptocurrency initiatives. For ordinary individuals who are either glued to their TV or social media – or both – that creates pressure to join in, even when you have little to no idea what is going on on the market in the long run or how they function.
Celebrities of all caliber began pushing a range of crypto projects even before the big breakout of 2020. However, the latest crash saw a new phenomenon, which included the actual projects and the people behind them becoming celebrities on their own. Sam Bankman-Fried, the young creator of the FTX exchange, became an almost messiah for many millions of eager followers and platform users. He presents himself as an ethical billionaire and donates regularly to nonprofits.
Many simply believed that he was predetermined to bring his venture to an unexplored level of success, while other, more regular companies like Coinbase, would ride the wave to BTC of 100,000 USD, then of 200,000 USD, and beyond. Sky, like it always appears before the collapse of the crypto market, seems like the limit. However, despite all of that, during the middle of 2022, the sky began falling in and the debris is still raining down. Some even expect the biggest pieces to drop in.
Chance for Growth
The cycle of the crypto collapse remains in play for better or worse, so there are right now numerous possibilities where the weaknesses of the current systems, which are falling, can become advantages of the future more stable ones. Decentralized finance is one example, showing the problems of the FTX in a new light that is very harsh on the deficiencies of the more or less traditional financial company dealing in crypto.
But, that is a very silver lining in a very dark cloud and many will be forgotten for just not seeing that much light in that line. Understanding this pessimistic perspective is more than relatable in a climate where BTC is looking at 10,000 USD as its eventual support. But, the chance for growth and expansion remains, as that too is a part of the crypto cycle. The problem is that now the situation seems like the further downturn in the present part of the cycle is almost assured in the near future.