Against the background of a large-scale crypto market collapse, more and more industry experts are warning about the beginning of another crypto winter — a protracted bearish trend. The previous crypto winter came in 2018, right after the massive price rally at the end of 2017.
Then crypto skeptics predicted the collapse of the entire crypto sector. But in fact, it recovered and reached incredible heights. However, not everything went so smoothly.
We decided to figure out how much the crypto sector has changed over the past five years, which expectations have come true and which ones have remained on paper. Let’s get started!
How Has the Crypto Market Changed?
Let’s analyze the main positive changes that have taken place in the crypto market over the past five years.
Mass Adoption of Cryptocurrencies
In 2017, about 20 million people owned cryptocurrencies. In 2022, the number of digital asset holders exceeded 300 million people or about 3.9% of the total population of the Earth. Transaction volumes and the number of active wallets have grown tenfold. At the beginning of 2017, the global market cap was only $17.3 billion. At its peak in November 2021, this figure exceeded $3 trillion. Even the current market cap of $1.15 trillion is a fantastic figure for 2017.
The benefits of cryptocurrencies have been recognized not only by retail investors but also by large companies. So, MicroStrategy, Tesla, Square, and NEXON, among others, chose bitcoin as a reserve asset and invested in it. The cryptocurrency payment option is going to be added by MasterCard and Visa payment systems. Meta (former Facebook) also tried to launch its own stablecoin Diem (Libra), but the project had to be curtailed under pressure from regulators.
Cryptocurrencies Have Become a Full-Fledged Asset Class
In 2017, cryptocurrencies were perceived as a crazy idea of techies and geeks or as a complex financial pyramid that was about to collapse. But since then, the perception of bitcoin and other cryptocurrencies has changed a lot — now, ordinary people, states, and players in the traditional financial system see them as full-fledged participants in the financial market. Today, cryptocurrencies are a special class of highly volatile and risky assets that cannot be banned.
Still, over the past two years, investors have had to say goodbye to the idea that bitcoin can become an inflation-protective asset that can help wait out market turbulence. On the contrary, bitcoin increased its correlation with the stock market and began to be perceived by investors as an analog of technological stocks.
Legalization & Tightening of Regulation
In 2017, legislators basically had no idea how to regulate digital assets and did not know if it was worth doing at all — how to levy taxes on cryptocurrency trading or what requirements crypto exchanges and market participants must comply with.
Now the regulators of most countries have either already legalized cryptocurrencies or plan to do so in the near future. Some jurisdictions even have the most friendly approaches to cryptocurrencies and blockchain startups. The exception to this list was China, which banned mining and bitcoin in 2021 due to accusations of excessive energy consumption.
In 2022, all major crypto exchanges operate under licenses, comply with money transfer rules and anti-money laundering and anti-terrorist financing laws, identify customers, and report user and transaction data to regulators. Thanks to this, the level of security of users of crypto trading platforms has become significantly higher.
Over the past few years, we have witnessed a race to launch Central Bank Digital Currencies (CBDCs). In 2021 only, CBDCs were launched by 7 countries, including Nigeria, Jamaica, and Caribbean countries. Since 2020, China has been testing the digital yuan.
The adoption of cryptocurrencies has gone much further: El Salvador and the Central African Republic have adopted bitcoin as an official means of payment. It seemed unthinkable in 2017.
Mature Market & Infrastructure for Institutional Investors
In 2017, there was no cryptocurrency infrastructure, and the market itself was actually a shadow market — now, it is officially recognized and even supported by many countries. Large companies and investors simply did not have the necessary tools to enter the market: they had no one to buy bitcoins from (institutional investors cannot simply buy them on an exchange) and nowhere to store them.
Now the crypto market has all the necessary tools and services for the legal work of large players and institutional ones. Every major crypto platform seeks to form its own ecosystem. At the same time, the current crypto infrastructure almost completely copies the traditional financial infrastructure: the market has custodial services for storing cryptocurrencies and a lending market, prime brokers. Also, the number of crypto investment funds has increased, and the market for crypto derivatives (futures, swaps, and options) has grown stronger.
The developed infrastructure attracted institutional investors and allowed them to become one of the market growth drivers in 2020–2021.
New Trading Instruments & Earning Opportunities
In 2017, the main ways to make money on cryptocurrencies were spot trading and mining. Now crypto market players have access to a huge number of investment and trading instruments: staking, liquidity provision, and yield farming, among other things.
Strengthening Crypto Exchanges’ Positions
Large centralized crypto exchanges have become the main driver of infrastructural changes in the market: they accumulate hundreds of millions of users, launch and promote new projects, and significantly improve the service. At the same time, even traditional banks began to understand the importance of the crypto market and are striving to take the place of crypto exchanges, offering their customers similar services for trading and storing popular cryptocurrencies.
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The Rise of the Crypto Mining Industry
In 2017, the mining industry was just in its infancy. China and the USA could boast of large mining farms and pools, but there was nothing from a full-fledged industry. In 2022, mining is a large and completely legal business with a rapidly growing and developing infrastructure.
One of the current trends within the mining industry is minimizing the negative impact of cryptocurrency mining on the environment. Today, about 75% of mining farms use green energy — technologies of green mining that use energy from renewable sources are rapidly developing.
Cryptocurrencies Have Become Easier to Use
Digital currencies have become much more user-friendly: there are many wallets on the market with a user-friendly interface and design, and their use does not require any special technical knowledge. The exchange of cryptocurrencies has been greatly simplified. Hundreds of millions of users can use cryptocurrencies on the PayPal and Square apps or buy them through a crypto exchange app.
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New Sectors: DeFi, NFT, GameFi
Five years ago, the crypto market was basically simple spot trading of cryptocurrencies and tokens through centralized exchanges or exchangers. Since then, new sectors have appeared on the market with a turnover of tens and hundreds of billions of dollars:
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- DeFi is decentralized finance, where users can conduct transactions with each other directly, that is, without intermediaries, using smart contracts. All transactions take place on decentralized exchanges or in special lending protocols. DeFi has allowed digital assets to compete with all areas of the traditional financial system.
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- NFTs are non-fungible tokens that allow assigning the right to a digital asset to its holder. They have found their way into a wide variety of areas: collectibles (such as CryptoPunks and BAYC), fan service, art, the music market, digital fashion, video games, metaverse, digital real estate, and so on.
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- GameFi — P2E games where players can earn in-game assets and NFTs: skins, avatars, land, and weapons, among others. These projects work on Play-to-Earn (P2E) principle.
What Crypto Ideas Are Yet to Be Implemented
Still, at the same time, much of what the crypto and blockchain enthusiasts hoped for five years ago has not materialized.
Blockchain Did Not Save the World
At first, crypto enthusiasts hoped that blockchain could solve many issues in the real economy, but this did not happen. Blockchain is indeed used in law, document management, insurance, logistics, and other sectors, but these are rather individual cases than a widespread practice.
Cryptocurrencies Are Not Used for Everyday Payments
No one ever paid for coffee with bitcoin, even using a Layer 2 solution of the Lightning Network. At the same time, the number of international transfers using cryptocurrencies has grown significantly, but recipients immediately transfer digital assets to fiat or stablecoins. Cryptocurrencies have not become a mass legal tender, remaining a store of value or a speculative asset that needs to be sold more profitably.
Bitcoin ETF Never Received Approval
The disappointment is that the U.S. Securities and Exchange Commission (SEC) has not authorized the launch of the first spot bitcoin ETF yet. At the end of 2017, it seemed like a matter of months, but the agency still regularly rejects applications from Wall Street companies under the pretext that BTC is poorly regulated, excessively volatile, and not suitable for non-professional investors.
Loss of Anonymity
Convenience comes at the cost of privacy: KYC checks are now mandatory on any major crypto exchange, and anonymous cryptocurrencies are often delisted due to non-compliance with regulatory requirements. After the massive implementation of the KYC/AML policy by the largest platforms in 2020–2021, no more talking about confidentiality.
Conclusion
As we can see, the crypto winter of 2018 did not lead the crypto market to collapse — over the past years, it has reached previously unthinkable heights. At the same time, it lost its weakest parts: for example, the ICO bubble burst, and hundreds of poor projects did not survive the bearish trend.
The current crypto winter will lead to similar consequences. We know for sure that cryptocurrencies will not disappear anywhere, and the market will become even more regulated. And the DeFi, NFT, and GameFi sectors will have to pass the test of strength: some of these markets may disappear like ICOs, but those that survive will prove their worth.
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