"A bubble is a feature, not a bug."
The past few months have been brutal. Waking up each morning feels like entering a battlefield. If you’ve worked in finance this past quarter, you might finally understand why previous generations favored "stable jobs" with meager paychecks in government roles. One of the largest crypto exchanges collapsed, token prices plummeted 90% from their peaks, and the average daily active users for dApps barely scratch 100. It’s enough to make anyone wonder…
Has cryptocurrency failed?
Understanding Bubbles
To define a bubble, we must examine the motives behind pricing. We buy commodities like coffee or bread because they fuel our daily lives—we need them. Excluding inflation, their prices align with supply-demand mechanics. Even when commodities like coffee surge, cheaper alternatives exist.
But what about complex assets like stocks? Their pricing hinges on tangible data. Conservative investors buy stocks expecting dividends from well-oiled business machines. In eras of loose monetary policy, speculators borrow cheaply, betting that asset appreciation will outpace interest rates.
Predictive models aren’t hard for established assets—we’ve got centuries of data. But how do you price a governance token for a decentralized platform or a digital image of a monkey? Suddenly, predictability gives way to speculation.
Hallmarks of Bubbles:
- Emerging Asset Class or Technology: Every major tech wave spawns a bubble. Stocks (1700s), railroads (1800s), and the internet (1990s) all followed this pattern.
- Data Scarcity: New technologies lack historical benchmarks, making reckless bets seem rational.
- Inflated Expectations: Human imagination often outstrips reality, especially with narratives amplified by social media.
- Network Effects: New communication networks (e.g., telegraph, internet) accelerate hype cycles by spreading narratives globally.
The Pandemic’s Role
The COVID-19 pandemic created a perfect storm:
- Lockdowns drove people toward digital entertainment and speculative investments.
- Central banks flooded markets with cheap capital, inflating asset prices.
- Inequality fueled risk-taking, as younger generations chased wealth in volatile markets.
Institutions mirrored this frenzy. Venture capital deployed record sums, while crypto exchanges like FTX became darlings of investors seeking exposure without direct risk.
Reality Check: Key Metrics
Despite the carnage, let’s examine traction in three critical areas:
1. Stablecoins
- Growth: Chain-settled payments ballooned from $90B in Q1 2020 to $1.6T last quarter (~17x).
- Use Case: Global, near-instant settlements for digital-native economies (e.g., freelancers, creators).
- Data: 83% of transaction volume comes from large transfers (>$1M), but retail usage is steady (25% of transactions are <$10).
2. DeFi
- Revenue: Top 10 dApps are mostly DeFi platforms, generating real cash flow.
- Users: Daily active users grew from ~400 in 2020 to 75,000 today—still 200x higher despite the bear market.
3. NFTs
- Adoption: OpenSea’s daily users jumped from 300 to 51,000 since 2020.
- Shift: From speculative jpegs to utility (e.g., Reddit’s 5.5M Polygon-based avatars, Nike’s $100M+ in NFT royalties).
What’s Next?
History suggests this contraction is a transition, not an endpoint.
- Regulation: Clarity will emerge, filtering out bad actors.
- Focus: Founders will prioritize users and cash flow over hype.
- Integration: Crypto primitives will embed silently into existing platforms (e.g., Instagram’s NFT tools).
Cryptocurrency isn’t dead. It’s maturing. The bubble’s burst sets the stage for what Carlota Perez calls the "synergy phase"—where technology meets sustainable adoption.
FAQs
Q: Is crypto just speculative gambling now?
A: Not entirely. Stablecoins and DeFi show real utility, while NFTs pivot toward consumer applications.
Q: Will regulation kill innovation?
A: Likely the opposite. Clear rules attract institutional capital and legitimize use cases.
Q: How long until recovery?
A: Expect 2–5 years for rebuilt trust and infrastructure (e.g., scaling solutions, user-friendly wallets).