In response to the Federal Reserve increasing interest rates yet again, the markets - both in stocks and crypto (and housing soon to come) - have been dropping pretty hard lately. For crypto investors out there: this is the sound of mainstream money from the general public leaving the space - they came for the party, then left after the party was over. The craze that we saw in 20’-21’ was really the result of NFT projects targeting people - largely cooped up indoors due to the pandemic - with a hype-based marketing strategy that seemingly resonated very strongly.
Out of all the NFT projects that could have reached #1, it was the Bored Apes Yacht Club: it doesn’t take an art expert (although I do like to fancy myself as one at times) to see what BAYC’s success “means” - it’s obviously targeted at people who’s primary ethos is boredom…and exclusivity. In a way, BAYC is the perfect sign of the times - people bored of the lockdown, the rise of digital marketing and remote work, our reliance on artificial scarcity to determine “value”, and Web2 marketing/hype and investing practices all rolled into one. There’s a reason why even the Ethereum team (most visible Vitalik Buterin) renounced BAYC as something that ETH “wasn’t intended” to do. Adjective-Animal JPGs basically missed the point of why Web3 was created from the very beginning.
Now that the Feds are tightening up their money supply (finally, after having printed endless amounts of it during the last few years) the “casino” market is about to come to an end. But just because the market is in a downturn doesn’t automatically mean that everything will be bad…there are lots of opportunities still there; they just look different from what we’re used to seeing up until now. For some of us out there, we’ve been waiting for this moment for a very long time.
If you might have been thinking about changing or trying new things out in your life, now is probably the best time to do it because in a few months the world as we know it will probably get flipped on its head and most things will become unrecognizable anyway. During recessions people’s priorities tend to shift away from speculative assets and into savings; short-term investments into long-term; people shopping for interest rates on savings rather than loan accounts; and so on. Those who adapt will do well - but it will require a shift in mindset that may feel strange and unfamiliar.
People say that “everyone” suffers during a recession but I tend to disagree - in any given market there are always winners and losers; money is game of how the idea of “value” compares itself to the price of goods around us. It is always relative to each other, in other words - and there are always ways to get ahead if you’re willing to look at the details close enough.
One thing to keep in mind that 80%+ of people don't own any stocks/crypto, so all the panic, hype, and emotional reactions you see in the media/social media is already a bubble of its own. Most people only see the prices of the things that they interact with every day - thing most people are seeing right now is that they see that inflation is cutting into their ability to survive day to day - and that something needs to be done. Until crypto products address these sorts of “bigger issues” of the public directly, it will always follow the general markets rather than setting the tone.
The reality is that most people living in United States were already used to massive inflation - the costs of living was already on the rise since 12’ onward (especially in housing, education, and healthcare - typically the 3 biggest expenses for the average person out there) and people were already getting squeezed out every year anyway. In the upcoming months there will be a lot of people with lots of money complaining about how “hard” things are for them, but I don’t expect there will be any sympathy for them - in fact, they will probably be the target for the next ridicule cycle if anything, really.
What that means is that the economy was already hell for most people during the "good times" - inflation was already well out of control but we simply failed to acknowledge it. On a personal level, I lost more friends (especially artists) than I care to talk about: many were forced to move away from the places they loved because the costs of simply existing in certain areas became untenable. A lot of people I knew gave up on having kids, gave up on their dreams, went back living with their parents - worse case, some of them literally ended up on the streets simply because they were unable to pay their rent.
People who have known me long enough know that prior to getting into crypto I was heavily involved with housing politics through the YIMBY movement - though this downturn is hurting my portfolio too, it's hard for me to think that a market crash would be a bad thing long-term, because not only would it would lessen the pearl-clutching incentives/behaviors of NIMBYs, it should also bring down costs of everything as a whole. And that is good for everybody, not just the few who happen to be lucky enough to get their hands on a certain type of ERCs.
So while it may be unpleasant to see the numbers in your accounts go down, this is the correction that many have been waiting for - the correction that we need. Once the housing market stops going up, there’s less reason (and ability) for NIMBYs to defend their imaginary gains against the tides of supply and demand - and in the long run, the market should equalize itself to where it should be. What Web3 needs more of is people with a mindset of abundance rather than of scarcity - and this will become more important as the crypto ecosystem starts to mature.
Web3 is not only a movement of its own, but it’s also a repudiation of the bad habits of the Wall Street/Web2 model - which has, over time, become a ponzi scheme of its own. Low interest loans allowed startups, politicians, and scammers to “fundraise” their way out of trouble: No money to pay for things we need? No problem - just print more! Company not profitable? No problem - just raise your Series Z to keep it going just a little bit longer! Ponzi schemes do actually “work” on some level, after all - as long as the market keeps on going up.
As we’ve seen with what happened with LUNA/3AC - which was entirely backed on the fantasy of Bitcoin going up forever and forever - there’s going to be a backlash against the stock market too, so that’s something to keep an eye out for. How did Bernie Madoff get away with what he did for over 20 years? The market was always going up. Now that the tide is pulling, we’ll get to see who was swimming naked underneath this whole time.
Bitcoin is obviously the first of its kind and currently the market leader in the crypto space as we speak - but for how long? While Ethereum is moving towards proof-of-stake as its primary economic engine (taking most of its tokens along with it), Bitcoin leaned hard into the proof-of-work + scarcity model in the last few years and never looked back. Given that the store-of-value idea is not unique to any coin - and that the only “value” Bitcoin currently provides is potential speculative gains (which are on its way out as staking rewards start to look more appealing during a recession) and a strange retro-nostalgia aesthetic for the pre-08’ eras (which will gradually fade over time), it’s hard to see it surviving for the long term.
More broadly speaking, “it was there first” is exactly the type of NIMBY argument that the market will “correct” in the upcoming recession, taking down a multitude of asset classes that have been relying on that mentality up until this point. Ethereum is attempting to escape that fate through their “merge” (we’ll see if they’re successful in doing that this summer), but Bitcoin has basically signed the pact to go down with the ship. In a few months, it could potentially be the only proof-of-work system left on the charts, quite literally.
I’ve always found it odd that a lot of Bitcoin fans aren’t too shy about calling their coin of choice “King” - which is actually a fairly new phenomenon that came during the 16’-18’ run, not before. (The dev community was much purer back then.) This phrase clashes directly with their supposed support for decentralization and democratization of money - the cognitive dissonance there is massive, to say the least. (Since there is no on-chain governance in BTC systems a small group of miners usually end up controlling everything on the protocol level behind closed doors, btw.)
There’s something very disturbing about the glint you see in their eyes when they claim that Bitcoin holders (not anyone else, obviously) will become the most “powerful” people in the world in a few years - I don’t think anyone outside of that bubble really believes that - especially now. This is the year 2022 and we don’t really have the time to idolize or fantasize the absolute powers of monarchy, even in imaginary forms. Web3 will rely on the transparency of ledgers to establish partnerships of mutual benefit, enforced by precision and reliability of smart contracts - but this requires us to get better at collaboration, rather than moving unilaterally and monopolistically, as Web2 has typically done.
As is the case with modern monarchies - the royalty can either choose to step down or be taken down forcibly - one or the other will happen, either way. BTC has largely been left out of the development talks of Web3 systems as a whole, since they refused to fork out their systems to make compatibility improvements - it will eventually get left behind as the world continues to move without them. Luckily this will happen through the simple process of numbers going up and down - rather than having to deal with the fallout of it in the real-world itself.
The typical pattern that the economy goes through during periods of recession is that they switch from a speculative to a savings mindset - when both the banks and the government spends all their money and have literally nothing left, what do they do? Raise interest rates to incentivize people to put money back in. As far as anyone can tell, the fundamentals of this relationship hasn’t changed and is not likely to have done so during this cycle either.
In crypto this means that there will be less demand for NFT lotteries and higher demand for coins that offer staking rewards as a benefit - undoubtedly there will be more and more people searching for the best rates out there as the Fed starts to raise its rates even further in order to keep inflation under control. Interest rates has been at 0% for so long that most people probably forgot that it was a thing - staking was a hard sell even during last year’s run since news of its developments were largely out-blasted by the NFT mania as a whole. But as we start transitioning into a different phase of the economy, people’s priorities are likely to shift.
Some coins that are well positioned to take advantage of this shift are Tezos, Algorand, Cardano, NANO, and many of the other coins that have been proof-of-stake from the very beginning. Ethereum and Dogecoin both have plans on switching over to proof-of-stake in the future (ETH supposedly in August, Dogecoin’s date is unknown), but the elephant in the room that nobody is talking about right now is the fact that Bitcoin doesn’t have the means (nor the plans to) transition into anything that is likely to be relevant in the near future.
Time will tell, but we’ll see what happens over the course of the next few months, next few years, since what happens is likely to be a crucial turning point for the industry as a whole. Now that mainstream money has left the space, both whales and HODLers are waiting for the right time to reorganize their portfolios and get back in. With fiat money out of the picture, we’re likely to see more independent movement between coins and clear winners and losers emerge within the ecosystem rather than always moving in parallel as it has up until now. What comes out in the aftermath of all of this will be a very different crypto landscape - possibly with the “flippening” happening during the midst of it as well.
As one last reminder, your portfolio going down is not necessarily a bad thing, if the goods that you pay for day-to-day gets, on average, cheaper. So I hope people don’t lose sight of the bigger picture and sees the opportunities and benefits that can come out of this transition as a whole. Money is about to get smarter: something that people have been demanding for a very long time. Well, if that’s what you’re looking for it’s coming right for us - hope people can recognize it when it’s here.