With every crypto market downturn, doomsayers claim it’s dead – but it’s an evolutionary process that is only making our industry stronger.
After more than six years in cryptocurrency, I’ve gotten used to regular declarations that periodic pullbacks in the price of Bitcoin mean that the industry worthless, a Ponzi scheme, or about to be crushed by government regulations and investor panic attacks.
As a hodler who has always had faith that Bitcoin is the future of the economy, and that its benefits for average investors make it a threat to the conventional financial system, these claims have always seemed short-sighted and the product of fear – in particular, fear that it’s making government fiat and big banks obsolete.
Bitcoin is a force for change, and many entrenched interests have no desire for the kinds of transformations it’s already bringing to the world. Even waves of dire headlines, like this one from last year – “Bitcoin Could Become Worthless, Bank of England Warns,” hasn’t chilled people’s enthusiasm for a system that they know, intuitively, will work for them.
There are 81 million Bitcoin wallets in the world, on a growth curve that will continue to make it compete with conventional finance. For decades, there has been a pent-up demand for greater inclusion and access in financial services, and a model where people’s economic survival isn’t at the whims of repressive governments.
During times of volatility and price drops, it’s natural for investors to be scared – but ultimately, it’s truly the status quo that should be more afraid of Bitcoin’s success. As someone who has watched many ups and downs in the market, I may not be thrilled when the price of Bitcoin plunges, but I’m confident that it’s part of a larger process that is making the industry more resilient, effective, and safe.
We take it for granted that evolution is the driver behind beneficial changes to our living world – without stresses and pressures, there is no impetus to adapt. I see Bitcoin much the same way, and I believe we’re in the middle of an evolutionary process that will build the next generation of the technology.
As we saw in the 2017 ICO bubble, which caused Bitcoin to languish below US $1,000 and caused a mass die-off of companies and projects, there is real danger to investors in hyped-up markets, and often, dips in price brings about necessary changes – ones that wouldn’t happen during booms in price.
Bitcoin is a force for change, and many entrenched interests have no desire for the kinds of transformations it’s already bringing to the world.
Here are some of the key ways that pullbacks in crypto make the industry better:
- Eliminating Weak Projects: When the crypto markets are riding high, there is always a proliferation of projects that don’t add true value or functionality and distract from the meaningful progress the industry is making. Downturns are a sink-or-swim time when capital retracts from hype and causes a needed cull of companies who don’t have strong value propositions.
- Better Investment Criteria: Closely tied to my first point, peak times for crypto often cause investors to lower their standards in the hopes of catching a wave of sentiment, and this results in undeserved funding for weak projects and companies. Higher investor standards mean that only those with a real value proposition get financed, and this helps professionalize the industry and concentrate capital on worthy projects.
- Responsible Regulation: Both of the above points were highly visible during the 2017 ICO bubble crash, where investors had thrown money at any company with “blockchain” in its name and hundreds of million in capital was lost on scams and hype. This led directly to serious efforts by regulators to address fraud and misrepresentation in the industry through stronger securities law application, and put the crypto markets on the path to a much safer and more sustainable future.
- Resilient Innovation: After facing the stresses of a less-friendly market, companies and technologies become more resilient to the changes that will inevitably happen in any market environment. This pushes lower costs, greater accessibility, higher security and new services that make will make cryptocurrency work better for more people and industries.
Of course, for those people who understand the market, there is another major advantage to downturns – it’s a buying opportunity. And as the most established and best-governed form of crypto, after the froth in the market is shaken off by the downturn, it’s Bitcoin that will emerge a winner.
On volatile days over the winter, Bitcoin has bucked the trend as other cryptos declined. During the price crash over the last few months, El Salvador bought the dip with hundreds of additional bitcoins, and at the beginning of February, crypto pioneer MicroStrategy added 660 coins to its treasury.
Bitcoin has also, by far, been the most adopted cryptocurrency of mainstream finance, with the launch of numerous ETFs and other instruments, the holding of BTC on the balance books by major companies, and the beneficial network effect of widespread payments services and more than 80 million users. When it comes to cryptocurrency, scale is critical – and nothing competes with Bitcoin.
I can’t predict what the next year holds for Bitcoin’s price, but much like some of its biggest investors, I have confidence that the cyclical process of downturns is far from the end, and that month after month, it’s showing new value for ordinary people, especially in the wake of the Canadian government’s Emergencies Act and economic censorship of the Freedom Convoy protestors.
What I do know is that we’re watching evolution in action, and that the industry will emerge stronger, more resilient, and with new solutions that make the crypto economy work even better for the people using it to reshape their financial future.