The bloodbath will probably worsen, at least, until the end of the year as inflation will remain above 5%, and regulatory crackdowns against the industry deepen, according to the annual report published by crypto research firm Messari.
Examining the industry through a long-term perspective, however, the firm said institutional investments have grown steadily YoY despite temporary bearishness taking reign, claiming that the Web3 revolution won’t go away as VCs continue to increase their bets on the industry.
Opportunities Amid Crises
Per the research titled “Crypto Theses 2022” led by Messari’s Ryan Watkins, the late-year interest rate hikes will predictably “stall the stock market’s momentum and hurt growth stocks.” Given this context, crypto will be expectedly punished badly as its correlation with the broader macroeconomic environment rises along with increased adoption.
Meanwhile, as regulatory scrutiny tightens in the coming year, FUD will dominate the space when some investors’ portfolios are down roughly 90%, thus unable to fight confidently against such claims.
The report suggested that, during the difficult time, investors should avoid leverage trading and shorting digital assets due to the high volatility involved. In addition, buying too early – cathing the “falling knives” – amid the bear market could still cause huge losses, Watkins warned.
Despite the short-term challenge ahead, as indicated by Watkins, the space remains robust in terms of earning support from venture capitalists and expanding its mainstream adoption. It has been shown in the growing institutional participation in the past years, ensuring that the “crashes of similar depth and length to 2014-2015 and 2018-2019” may not occur this time.
As such, Watkins touted the idea that capital flowing in the space tends to be parked at blue-chips projects, including Bitcoin and Ethereum.
“When newcomers enter the space, that money tends to flow in two directions – in and down. Not out. Capital may trickle down to higher beta, emerging tokens, but when it cycles back up, it often doesn’t cycle out (except for taxes). Instead, it stops at BTC or ETH or SOL or the crypto ‘blue chips’.”
The Collapse in Institutional Trust
Messari’s report attributed Web3’s bullish outlook partly to the failing public trust in financial institutions. Such a view isn’t bipartisan at all, as 70% of Americans disapprove of Congress and no longer trust policymakers to do the right things, given the history of overspending and bailing out failed institutions at the expense of the public interest.
Many – particularly young investors – see crypto as a “life raft,” a rising asset based on the thesis that decentralized technologies with embedded financial incentives could offer a compelling alternative to the current legacy institutions. Thus, the growing dissatisfaction has driven investors into crypto assets, Watkins noted, shown in the massive growth of user economics.
“I have 99% conviction that crypto will be an order of magnitude larger by 2030 because the user economics here are an order of magnitude more attractive. We’re at the brink of a total transformation of the global economy. One that’s bigger than mobile, and maybe even the internet itself.”