September 25, 2023

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The cryptocurrency market is finally here and all-time highs are looking more and more like distant sweet dreams. Bitcoin (BTC) is down more than 70% from its highs, Ethereum (ETH) is down almost 80%, and so is almost every other currency.

The DeFi (decentralized finance) space has also been hit hard with the Luna UST collapse and Celsius network withdrawal issues among many others. Worst of all, it’s still nowhere. Rampant inflation means the Federal Reserve will raise interest rates further, further crashing the market.

Among all these, the total value locked (TVL) in DeFi protocols has fallen from an all-time high of $254 billion in early December 2021 to the current just about $90 billion. At face value, the situation looks dire, but that’s far from the whole picture. Despite the expected market turmoil, there is still much to be optimistic about.

In fact, upon further analysis, the decrease in TVL is mainly caused by the decrease in market prices and not because users are exiting the protocols. For example, on a good day, about 500,000 people use the Ethereum network daily which is about the same amount as exactly a year ago. DeFi projects continue to attract interest, regardless of the market turmoil.

Moreover, the bear market and the inevitable crypto winter are not stopping the growth of DeFi. Projects like ETH, Polkadot (DOT), Cardano (ADA), Avalanche (AVAX) and many more have major updates planned in the coming months and years, proving without a doubt that DeFi is here to stay.

The industry has learned a lot and people recognize that market turmoil is inevitable and not the end for cryptocurrencies. The crypto crash happening today and the bear market of 2018 is not a repeat of the same thing.

Although it is almost impossible to accurately predict a crash, all markets move in cycles. During a bull market, speculation leads to overpriced projects and bad investments, which are naturally followed sooner or later by a downturn.

The latest market cycle can be called the “era of Initial Coin Offerings (ICOs). Crypto saw its first major market expansion. New projects and existing startups seized the opportunity and began leveraging digital assets as a funding mechanism, often without providing any real underlying value.

The industry was extremely uncertain and overflowing with too many bad ICOs. The market crashed after Bitcoin hit an all-time high of $20,000 in December 2017. The euphoria quickly turned to fear.

Many ICOs failed and overleveraged retail investors suffered. Additionally, fear of impending regulations created the perfect storm for a massive market crash, with many doubting the industry would ever recover.

However, a look at the crypto space today tells a different story. First, the blockchain industry has transformed from a few functioning networks to a series of interconnected ecosystems that attract millions of daily users. DeFi, non-fungible tokens (NFT) and iGaming are blossoming multi-billion dollar industries, with plenty more dry powder to get by in a bear market.

Additionally, the market shifted from being led primarily by retail investors to large institutions and companies such as Grayscale and MicroStrategy. Crypto sponsorships are popping up in almost every major sport, and Web 3.0 products are increasingly being marketed everywhere.

Even countries are starting to adopt blockchain technology. El Salvador made Bitcoin legal tender and with current inflation, other nations may follow suit.

It is safe to say that DeFi is no longer a niche topic, but a real driver of the global economy. Its potential to change the world is no longer a secret and is recognized by many.

But as important as the blockchain industry has become, challenges remain. The collapse of Terra and UST was a heavy blow to DeFi. Afterward, most stablecoins, including Tether, struggled to maintain their tether.

Trust in stablecoin algorithms has inevitably declined, which could prove to be a big problem for smart money entering the market. Without a doubt, new security solutions and regulations are needed to stabilize the situation.

The macroeconomic outlook also looks bleak as higher inflation, interest rate hikes and market crashes look increasingly likely. Crypto faces many challenges, but we’ve been through it before.

Bear Markets are never easy. However, higher crypto adoption and industry consolidation mean the market may not suffer as much as it did in 2018.

I remember Market cycles are normal and after the euphoria comes the inevitable crash. In a bear market, only projects with real underlying value and use cases survive, and luckily DeFi has plenty.

Kate Kurbanova is its co-founder and COO Apostro, a risk management and security platform for DeFi projects that uses blockchain data to prevent financial exploits of smart contracts on client platforms. She is an experienced financial project manager and startup creator and has a strong background in blockchain, including DeFi projects, DApps, yield farming and crypto trading.

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Disclaimer: The views expressed in The Daily Hodl are not investment advice. Investors should do their due diligence before making high-risk investments in Bitcoin, cryptocurrencies or digital assets. Please note that your transfers and transactions are at your own risk and that any losses are your responsibility. The Daily Hodl does not recommend the purchase or sale of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

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