It is terrible that the cryptocurrency plummeted, but this is not the end. GSR looks at where crypto could head and why we should be optimistic.
Opinion on crypto price action
With bitcoin down 67% from its November 2021 high and altcoins even worse, the poor price action of the past 14 months has left even its most ardent supporters with pessimistic and depressed attitude towards cryptocurrencies. However, GSR considers that such volatile price action is normal and to be expected, given the novelty of the technology and uncertainty regarding future cash flows and less precise valuation methods. more, reducing the basic information content contained in big moves.
*Price action is a trading method based on technical analysis or more specifically based on the use of charts and price movement patterns to identify trends and make decisions*
In addition, GSR reckons that much of the price movement has been driven by sentiment – similar to the US software industry valuations rising in 2021 despite falling earnings – and by the macro environment – due to the expected outlook. Interest rates are expected to change by the end of 2021 — not by a change in the cryptocurrency’s fundamentals or its long-term outlook.
Dot-Com’s demise is a historical parallel, where excess prosperity and a supportive macro environment quickly collapse when both sentiment and context are turned upside down, although the imposition The use, development, talent and capital acquired during the boom years laid the foundation for the transformative technology that now touches us in our daily lives. And the bright spot in these dark times for crypto is that the massive price drop is now significantly more beneficial for those who have remained in their status quo – GSR argues that smart money is not just HODLing but bullish. double.
The long-term future of cryptocurrencies
Price seems to be a poor signal for what blockchain/cryptocurrency can become, there are a number of indicators and analyzes that indicate the current and future state of the industry, such as:
Usecases & Benefits: Blockchain offers many use cases and benefits that are not possible with other technologies. First, because open, decentralized networks execute code as text and store data transparently and explicitly, blockchain technology allows for the elimination of intermediaries by replacing them with trustless, autonomous code, such as in decentralized finance.
Second, unlike traditional finance that is built on obsolete rails, blockchain technology reimagines the rails itself to enable a permissionless exchange of value with near-zero cost and liquidity. calculation almost instantaneously at any second of the day. Finally, blockchain technology enables new models of governance (e.g.: KNIFE), ownership (eg: NFT) and business model (e.g. token incentive). These revolutionary use cases and benefits will drive continued adoption and growth.
Bitcoin Properties & Blockchain Use Case
Mental model: Mental modeling can help a person better understand complex concepts and give insights into what may lie ahead. A particularly relevant mental model is that of the web, with blockchain/cryptocurrency powering its next phase. Indeed, web1 is characterized by static web pages connected by hyperlinks and controlled by businesses (i.e. read-only web), while web2 opens up dynamic, user-generated web pages , community-centric (ie read-write web).
Now, web3, which uses blockchain technology and tokens, is built, owned and operated by users, not big tech (i.e. read-write-private web). A second mental model is the development of the computer, in which corporate mainframes were originally owned and used by large organizations, and later personal computers were created. owned and used by individuals.
Now, blockchain technology is ushering in the era of the public computer, a virtual computer that doesn’t exist anywhere and everywhere, not owned by anyone but used by all. The next iterations of the web and desktop may be their biggest yet.
Compare Web1, Web2, Web3
Basic rules: Another method to gauge the current and future state of a cryptocurrency is to examine its underlying long-term trends. For example, adoption and usage continue to grow despite the bear market, with the number of crypto users increasing by ~40% throughout 2022 and the total number of transactions on Ethereum and its layer doubling the total. plus 30% in Q4 2022 compared to Q4 2021.
Development continues to grow as well, with the number of verified smart contracts deployed increasing by 50% by 2022 and the number of full-time crypto developers by 8% year over year. as of January 2023, still much higher than it was a few years ago, with headcount at most major crypto companies.
Finally, the total amount of venture capital invested in 2022 is roughly the same as the previous year, and while the pace of deployment has slowed, $22 billion of capital raised by VCs last year was invested in ventures. Crypto/web3 companies contribute a lot to the market liquidity to drive the industry for years to come. These trends will lead to long-term expansion.
Long-term crypto fundamentals
Main challenges: Another way to gauge a cryptocurrency’s long-term outlook is to test whether its key challenges are surmountable. The lack of regulation is a key challenge for centralized crypto services; however, many jurisdictions are either about to adopt comprehensive regulatory frameworks or are actively thinking about how to do so. Risks around safety and security cannot be underestimated, although efforts to reduce smart contract risk, improve custody experience, and reduce fraud are underway.
UI/UX remains particularly troublesome, although many are working to abstract away the blockchain component, with efforts revolving around account abstraction, new primitives/utilities, mobile accessibility dynamics and privacy/interoperability. And there is a renewed focus on real utility over Ponzi, all of which suggest that cryptocurrencies will overcome these formidable challenges over time.
Total value of cryptocurrencies received by illegal addresses, 2017 – 2022
Areas of particular promise: Advanced regions could offer the opportunity to attract large populations, bouncing well for the industry. For example, zero-knowledge proofs allow one to prove that a statement is true without revealing any other information and will open up cloud-scale decentralized computing, anonymous payments and new identity structure, etc. And in identity, a new decentralized model will allow users to own, control and profit from their identity and data with greater privacy and security without no need for centralized parties.
Modular blockchain protocols isolate and optimize each of the core blockchain functions in terms of execution, consensus, settlement, and data availability for security, speed, and decentralization. high at the same time and allow for mass adoption. And decentralized hardware networks will incentivize physical infrastructure development, bring idle resources to life, and provide a worthy challenge to proprietary mega-infrastructures.
Sectors at the forefront of crypto innovation
Multiple risk events over the past year and a rapid drop in token prices have brought the shortcomings of cryptocurrencies into full display and led to widespread rejection across the space. However, GSR considers that a major price drop is normal and to be expected given the nascent industry and the price action over the past two years being driven more by sentiment and macro conditions than by sentiment. due to a change in fundamentals or the ultimate outlook for what cryptocurrencies could become. When examining different blockchain/cryptocurrency analytics and metrics – use cases and benefits, mental models, fundamentals, key challenges and areas of hope concrete – the future looks particularly strong.
That won’t happen overnight, as previous stages of technology adoption and consumer behavior change took decades to take effect, but the opportunity is huge, with Global crypto users account for only 5% of the total population, and the crypto market capitalization is only 0.8% of both stocks and bonds. So despite 2022 being a bad year, the future of crypto has never been so bright. In conclusion, GSR still believes in the future of cryptocurrencies.