An Analysis of Historical Crypto Prices
"We do not learn from experience... we learn from reflecting on experience."- John Dewey
We know how it feels when everybody constantly talks about the next big thing. It's overwhelming. Especially so when there's a bear market set in for probably the next couple of years. So that's why we thought we might make this one retrospective-- something that goes back in time and monitors where we went wrong and how we can prevent another crypto meltdown of the kind that has precipitated lately.
A few points to consider before you jump in:
Nothing is mentioned in this article as investment advice. Readers must invest at their discretion.
Our study will concentrate on the timespan between January 2022 and July 2022. So we're not considering the beginning of the crypto bull run.
With that, let's dive right in.
Recap of Last Six Months
On 1st January 2022, the total crypto market cap stood at around $2.2 trillion. The exact figure as of 1st July 2022 plummeted to around $870 billion. Almost 60% of the total market valuation was wiped out in 6 months. However, such a metric doesn't paint an impartial picture. This would effectively lump both the good and the destructive projects together, making any meaningful comparison with the TradFi performance impossible. That's why we will only focus on the good and resilient projects and structure our price action analysis into the following sections:
1. DeFi Market Cap
2. Metaverse Market Cap
3. Data Economy Market Cap
Note: Our analysis is only limited to Ethereum projects to avoid complications in the study.
DeFi Market Cap
For assessing this sector, we will leverage the DeFi Pulse Index (DPI) created by Index Coop. At its core, DPI consists of 14 blue-chip DeFi projects: Uniswap, Aave, Maker, Loopring, Synthetix, Compound, Yearn, Sushi, KNC, REN, Balancer, Badger, Farm, and Rari Capital. This presents an accurate picture of DeFi's market performance.
On 1st January 2022, the total market cap was $154 million. As of 1st July 2022, its market cap was reported to be $28 million, down 81% from our reference point in the timeline.
Metaverse Market Cap
For this one also, we will employ an index curated by Index Coop called the Metaverse Index (MVI). This index encompasses Illuvium, Axie Infinity, Sandbox, Decentraland, Enjin, WAXE, Rally, Audius, Yield Guild Games, Decentral Games, Etherenity Chain, NFTX, Whale, Rarible, and REVV.
It clocked a valuation of $45 million on 1st January 2022, declining to $7 million on 1st July 2022 by 84%.
Data Economy Market Cap
Finally, this can be effectively captured by the Web3 Data Economy Index (DATA). It consists of the following: Chainlink, Filecoin, The Graph, Basic Attention Token, Livepeer, Ethereum Naming Service, Ocean Protocol, and Numeraire.
As far as the performance is concerned, the index reported a market cap of $2.1 million on 1st January 2022, which slumped to $471k on 1st July 2022 by 77%.
Crypto Vs. TradFi
As a representation for TradFi, we will use NASDAQ 100 and S&P 500 – the world's two most significant financial indices. During the same period, NASDAQ 100 tumbled from $16k to $11k. While S&P 500 was even more stable, going from $4.7k to $3.7k.
However, this does not suggest that crypto as an asset class is inferior to others. It's worth remembering that all crypto projects are structured like startups, even the blue-chip ones at the end of the day. This fundamentally means that they're still not resilient against the forces of the public markets.
Keeping another market crash at bay is most likely impossible. But what is possible is to reduce its magnitude in the future. Increasingly, it's getting clearer that infrastructure development is top of the list for mass adoption. Retail consumers wouldn't want to spend a couple of hundred bucks on fees or wait 5 minutes for a transaction to go through. The key lies in making the ecosystem friendly for the masses.