There is something about the latest crypto crash that makes it different from previous downturns.
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According to the chief executive of blockchain company Tezos, the ongoing crypto winter will “only get worse” as the industry recalibrates to a world of higher interest rates.
Asked about the falling price of many crypto assets this year, Kathleen Breitman said, “A lot of it was bloated with cheap money, and a lot of it was basically backed by VCs trying to pump.”
“There was a lot of easy money in the system and I think it was artificially fueling a number of different things, primarily the valuations of these companies,” she told CNBC’s Karen Tso on Wednesday at the conference. Web Summit in Lisbon, Portugal.
Breitman cited the OpenSea NFT marketplace, where trading volume grew from $2.9 billion in September 2021 to $349 million in September 2022, according to data from Dune Analytics.
“Obviously there’s a phenomenon that kind of peaked and died out in a lot of these markets, but in the meantime they’re struggling with a $13 billion valuation,” Breitman said.
“So I think there’s a lot of cheap money that’s come in, valuations have skyrocketed, you’ve had people trying to justify those valuations in one form or another, usually through cheap tactics like yield farming, and now that the easy money is gone, all that’s left is that we get communities, hopefully,” she continued.
On whether the pause in Federal Reserve rate hikes that economists expect next year could see crypto markets rally, Breitman said there will always be a shift in crypto and technology valuations based on the anticipated benefits of real user growth; and without the ability to continue using “cheap tactics” to attract “easy-come, easy-go” users.
“Crypto hasn’t been rated by that metric, and neither has technology in the last 10 years where we’ve had low interest rates,” Breitman told CNBC. “That remains to be seen, but fundamentally I think what you’ll discover are the useful things that will thrive.”
“But that’s the small minority of crypto apps, whether people want to admit it or not.”
Tezos, which Breitman also co-founded, is a smart contract platform, like the better known Ethereum, but which allows token holders to vote on changes to the platform before they are adopted every day. some months.
Use of the network grew in 2021, Breitman said, driven by demand from the art world, where digital artists mount art on the blockchain and trade it. This use provides one of the only sources of organic growth in the wider industry, she said.
The notion of the end of the era of easy money in crypto is one that analysts discussed in recent months amid the recession.
Some industry figures believe that the recent stabilization in relative prices of assets such as bitcoinswhich has traded between $18,000 and $25,000 for the past four months after experiencing massive volatility, is positive for the industry.
Antoni Trenchev, co-founder of crypto lender Nexo, previously told CNBC Bitcoin’s performance was “a strong sign that the digital asset market has matured and is becoming less fragmented.”