Let’s enjoy the last “crypto asset winter”[Opinion]| coindesk JAPAN | Coindesk Japan

Are you wearing skis? I want you to wear it firmly and enjoy it. It will be the last “crypto asset winter”. There have been a couple of “crypto winters” before, but this one was the worst and most frustrating.

Thankfully, this is going to be my last winter. The reason is that crypto assets and blockchain are becoming a regulated business as usual. It’s always very difficult to separate the signs from the noise, but we see three big positive signs for the future.

1. Surge in law enforcement action

Cryptocurrencies and blockchain have always been plagued by an awkward relationship between the two types of people. Hope-eyed good guys (I’m one of them) and ruthless opportunists hijacking industry messages to sell whatever comes to mind.

The most frustrating thing over the years has been that the warnings we have been issuing about the dangerous, speculative and downright silly nature of some crypto and blockchain investments go unnoticed.

EY (Ernst & Young) warned about the disastrous consequences of initial coin offerings (ICOs) in 2018 and 2019, but we weren’t the only ones to voice such concerns. Enforcement actions are far more effective than warnings and social media controversies.

2. Policy Contradiction and Inconsistency

Many countries, including the United States, have complex and decentralized regulatory systems. If everyone involved in blockchain can’t agree on what policies they want, it shouldn’t be surprising that regulators can’t fully agree on it anytime soon.

What is useful is that the legal system tries to make a consistent sense of how laws are applied. In such cases, regulators must express a clear and consistent opinion on the meaning of the law. Clarity needs time to form, but it’s coming.

3. Industry leadership and product maturity

Bubble-bust cycles in the tech industry tend to occur when expectations and excitement far exceed a company’s ability to actually create a product and make a profit. In the early 1980s, gaming consoles and personal computers emerged, but that was what the tech industry was doing before they found the right use for them to drive enterprise adoption.

The second, much bigger bubble came in the late 1990s. It was a time when network technology and the Internet created a lot of excitement, but not much of a profit. Like many blockchain and cryptocurrency business models of 2018-2022, the dot-com bubble saw companies go public without meaningful revenue streams and sometimes even a good business plan, making hundreds of millions of dollars. had procured.

The parallels between the dot-com bubble and the bubble burst are worth remembering. In both industries, investments and valuations grew significantly based on seemingly impossible promises of future capabilities.

In 1999, approximately $350 billion (approximately ¥48 trillion) worth of online transactions were conducted, most of which was done using existing B2B systems such as EDI (Electronic Data Interchange) rather than consumer e-commerce via browsers. It was

At the peak of the dot-com bubble, big investment banks, academia, and research firms made bold predictions that by 2005, online commerce would reach $4 trillion to $6 trillion annually.

But the prediction was absurd. In 2005, consumer e-commerce via web browsers was $105 billion. It’s no surprise that market valuations plummeted and many well-funded companies went bankrupt.

In 2000 alone, the tech market lost about $1.75 trillion in market capitalization. This is equivalent to about $3 trillion today (2023), more than the market capitalization of the entire blockchain ecosystem.

And the story gets interesting from here. Today, e-commerce and online business are what they predicted in 1999. By 2022, total e-commerce spending will approach $5 trillion. Over $1 trillion in the US alone. The combined market capitalization of the top 10 tech companies in the world is about $7 trillion. Tech stocks outnumber the financial and energy sectors combined in the US stock market. There have been ups and downs since 2000, but there has never been a tech bubble. The reason is simple. The tech industry has become a normal industry where valuations are based on revenue and profit growth, not on dreamy future projections.

ordinary industry

Blockchain and crypto-related products and companies are also beginning to show signs of maturity. While still in its infancy as a whole, NFTs seem to have found lasting use within the user and corporate ecosystem as digital trophies, tickets and proof of participation, as well as collectibles. NFTs have become so simple and easy to issue that anyone can now offer them.

At EY, businesses like supply chain management, product traceability and carbon emissions tracking are growing. This is because companies are leveraging blockchain for use cases unrelated to financial engineering. Privacy technology (not to be confused with anonymity) has become the key to unlocking practical use cases among companies that want to leverage shared public technology infrastructure without sharing sensitive information.

As we make our way through the wreckage of “crypto winter,” the blockchain industry has the same bright future. Bad guys are put in jail. The rules are becoming clearer. And most importantly, companies in this ecosystem are building real products that are being evaluated based on revenue and profit.

As a result, blockchain and crypto assets could become a normal industry. As a normal industry, there will still be ups and downs, but there will be no more bubbles and bursts. So enjoy this “crypto asset winter”. This is the last time.

Mr. Paul Brody: The global blockchain leader of EY (Ernst & Young).

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: Please Enjoy the Final Crypto Winter