What does a bear-market ‘cleanse’ actually mean?

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In his monthly crypto tech column, Israeli serial entrepreneur Ariel Shapira covers emerging technologies within the crypto, decentralized finance (DeFi) and blockchain space as well as their roles in shaping the 21st century economy.

The post-mortem consensus on the crypto market crash among industry leaders ranging from Polygon co-founder Mihelo Bejelic to billionaire crypto investor Mark Cuban is that a bear market is a healthy way to clear the market. The latter also referred to a line used by longtime crypto critic Warren Buffett to express his opinion on the matter.

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“Only when the tide is out do you know who is swimming naked.”

Of course, no one in the industry would dispute the claim that bear markets are weak, or in this case, downright corrupt. But we would be wrong to leave that analysis as if over $700 billion being wiped out overnight is something we should continue to accept from the crypto markets. It is important to understand the key factors behind this last bull run, which led to its heavy end, and how to promote a more stable market going forward.

NFT: Blessed or Passed?

We are five years away from the first monumental crypto crash inspired by the infamous initial coin offering (ICO) boom of 2017. As an industry still in its infancy, most of the projects that sprouted up during this period and promoted investment were random coins claiming to be the next bitcoin (BTC). The industry has evolved a lot since then, and this time around, other applications of blockchain have spread.

So, what was the last bull run version of the scam ICO? Several factors contributed to the latest market surge that pushed bitcoin to nearly $70,000 per coin. But perhaps most similar in their origins – and yet often more ridiculous – to older ICOs were non-fungible tokens (NFTs), a market that reached $25 billion in 2021. The industry probably reached peak hype when the bored NFT Ape Yacht Club (BAYC) collection was selling for hundreds of thousands – and later millions – of dollars in Ether (ETH). Celebrities joined in, as well as industry icons like Adidas, Coachella and even the Super Bowl.

related: Beyond the hype: NFTs could pave the way for transforming business experiences

Then it all went south when everyone discovered that over 80% of NFTs created for free on OpenC were either frauds or scams. The cash-grab culture was demonstrated in full in person at the NFT.NYC event in late June.

That being said, it is not as if many in crypto deny that the technology behind NFTs will redefine ownership and play a major role in Web3. But how can we move toward a future where Sams is riding the coattails of innovation?

It’s actually quite clear. The way forward for NFTs and the technology behind them is to link them to desirable physical assets and harness their potential to authenticate and secure products.

For example, companies in the luxury goods industry are using NFTs as a means to combat the proliferation of counterfeit goods. Projects such as the Aura Blockchain Consortium, led by luxury giants LVMH and Prada Group, harness the power of NFT technology for product authentication, supply chain transparency, and data ownership for their physical products.

It is not necessarily about selling a digital sneaker but about enhancing the product and brand experience for our affluent customers. For example, jewelry company Ywell launched a securities and trading platform tied to fine jewelry and precious metals as a guarantee – actually pegging NFTs to tangible products rather than JPEGS.

related: NFT 2.0: The next generation of NFTs to be streamlined and reliable

Greener pastures of blockchain

It is imperative to survive a bear market not only for NFTs, but also for more fundamental crypto assets – which, by the way, have not fully recovered for their propensity towards scams. The collapse of algorithmic stablecoins has the potential for casual holders and companies to seriously explore how to connect crypto to traditional assets, but that doesn’t mean all hope is lost. The way forward here really lies in focusing on creating a product that meets a real, tangible market need – no different than a solution to the NFT market collapse.

related: What other algorithmic stablecoins can learn from Terra’s crash?

This is a take we’ve all heard before. So, how did we get there meaningfully this time around? It all goes back to the basics of trading. To thrive, startups have to find a problem they’re trying to solve, and that problem may not simply be that the founder isn’t rich enough. So, what are the areas that meaningful coins can focus?

Minimizing environmental impact and operating sustainably has long been a white whale for cryptocurrency and blockchain projects. A recurring criticism of crypto and blockchain as a whole is that they cause serious damage to the environment due to emissions caused by token mining and other crypto byproducts. So far, most projects have been unable to remove this stigma, but new developments could help make a significant difference to this narrative.

In the wider business world, sustainability has quickly become a core value for a modern company to embody. While many of these corporate commitments are either superficial or involve a vague promise to reduce carbon emissions by a certain year, there are more concrete steps crypto can borrow from. One such development has been the adoption of corporate carbon credits, which, while imperfect, are a meaningful way for corporations to offset their emissions and ecological footprint.

related: Green finance needs voluntary carbon markets that work

Although there have been major blockchains on eco-friendly operations such as Cardano and Algorand, the option for crypto holders to join the carbon market is another way to encourage sustainable growth. Projects offering crypto-specific carbon credits or tokens linked to external carbon credits, such as the CC token, which opens access for businesses and individuals to invest in carbon credit futures, provide investors with tangible value. Others are working to make the second largest blockchain by market capitalization, Ethereum, more environmentally friendly.

The crypto and blockchain industry is defined by its fiery nature and revolutionary ambitions. While any emerging industry is bound to be subject to volatility, downturns and bottlenecks, the latest bear market should send a clear signal to projects: it’s about finding a problem that needs solving, and really I have to use my product to solve it.