This week, a major cryptocurrency that is said to be pegged to national currencies like the US dollar has dropped in value. Volatility has been the buzzword of the crypto industry for the past few months. The short-term factors have overshadowed the long-term expectations. This leads to an optimization between the most important actors and instruments. Survival of the fittest further strengthens the industry by removing unreliable or unethical participants.
Crypto prices hit their yearly lows in January and February 2022. This was followed by an increase in March and a decrease in April and May. In the sub-sector of NFTs, prices and liquidity have fallen and the number of users has also declined significantly. On the other hand, well-known names have increased their presence from a legal and practical point of view.
The Metaverse sector, represented by Decentraland (MANA), Sandbox (SAND) and Axie Infinity (AXS), has delivered an excellent performance in February with an annualized return of 1851% . BTC and ETH also managed to improve their performance in February and March before crashing again in April. The role of the largest cryptocurrencies as safe havens further strengthened the market leaders.
Curve, MakerDAO and Lido Finance maintained their top 3 positions among DeFi protocols based on Total Value Locked (TVL). Lido Finance remains among the most undervalued protocols based on the ratio of market cap to TVL. The DeFi sector, while seeing sell-offs, continued to outperform traditional cryptocurrencies.
The entry of the largest companies into the crypto sector has become increasingly evident. McDonald's has filed at least ten trademark applications as a result of its Metaverse plans. JPMorgan became the first bank in the Metaverse with the opening of Onyx Lounge in Decentraland . Super Bowl LVI tickets included commemorative NFTs. Corporate presence in the crypto industry means a broad user base and more significant capital inflows as demand increases.
GameFi
GameFi is also trendy. Some tech giants like Facebook have already shown their intentions to become part of the Metaverse and the gaming sector. Traditional gaming platforms like UniSoft plan to integrate blockchain technology into their business and technical models, including using NFTs. The NFT market was around $25 billion in 2021. This year, it is expected to reach $35 billion in net sales. Based on the current growth rate, observers predict the NFT market will grow by 80 billion US dollars by 2025.
The legal aspect of the crypto industry was already showing signs of volatility. The SEC opened an investigation into Mirror Protocol, which allows trading of synthetic versions of popular US stocks.
The commission even issued subpoenas to the CEO of Terraform Labs after the US District Court judge ordered compliance. The global crypto community has fended off an attempt by the EU and European Parliament to block or cap proof-of-work assets through their Crypto Assets (MiCa) Bill, namely 61(9c). The Ukrainian parliament passed the bill legalizing cryptocurrencies in February. In March he was signed by Volodymyr Zelensky.
The investment community saw the temporary drop in the crypto industry's market cap as a solid investment opportunity. Capital investments in the blockchain and crypto industry reached $14.6 billion in the first quarter of 2022. That's almost half of the $30.5 billion invested in all of 2021. The early adoption phase of the industry continued to present a wide range of investment opportunities. Additionally, some saw the crypto assets as a defensive asset against rapidly rising inflation in dollar prices.
Major Investments: Sequoia Capital and Paradigm invested $1.15 billion in Citadel Securities. This was the biggest deal of Q1 2022 within the crypto industry. The transaction marks a move from Citadel Securities into new asset classes, including crypto. Cross River made a $620 million investment in crypto solutions.
Mergers and acquisitions: Some of the biggest mergers and acquisitions in the crypto industry include Silvergate Capital's acquisition of Diem in January, Fireblocks' acquisition of First Digital Trust in February, and Blockchain.com's acquisition of Altonmy in March. The Web3 sector has attracted the largest share of investment, accounting for 26.5% of the total in Q1 2022.
Sustainable Developments: The crypto industry has also shown how it can contribute to good causes. Decentralized autonomous organizations are stepping up their engagement amid Russia's war against Ukraine. Ukraine DAO alone has raised $6.75 million for the benefit of Ukraine through the sale of NFT. The crypto fund set up by the Ministry of Digital Transformation of Ukraine has raised over $60 million. These examples show how the crypto industry is removing obstacles and bureaucratic hurdles for a good cause.
Risks and hacker attacks
Like any other company or bank, the crypto industry is vulnerable to hacking. They uncover network and exchange vulnerabilities through reentrancy attacks, direct hacks or the use of other tools. The good news is that every incident strengthens those involved and the industry as a whole. Vulnerabilities are eliminated and the backdoor closed to future hacking attempts.
Victims of the latest attack in March-May 2022 include Agave DAO, Cashio, Revest Finance, Ronin Network, Voltage Finance, Inverse Finance, Elephant Money and Beanstalk. The attacks usually result in losses in the millions. Of the $181 million stolen from Beanstalk, the attackers managed to keep $76 million.
Crypto industry: what does the future hold?
The fundamental data points to future growth of the crypto industry. The temporary short-term volatility offers investment opportunities and a good basis for mergers and acquisitions. Our tip is “BUIDL” (Build Useful Stuff): build strong infrastructures and invest in trustworthy projects. This avoids the risk of profits being lost during the down cycle and encourages fresh capital flows into the industry.
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