It’s a challenging time for the token economy. The ecosystem faced its rockiest year yet in 2022, sparked by market volatility that wiped out more than $2 trillion of value from the space. Some of the most notable events of the year were also the most devastating. Major collapses like Terra, Three Arrows Capital, and FTX sending shockwaves through the entire ecosystem. But while 2022 was a year that many people would rather forget, there are plenty of good reasons to feel positive about the token universe as we head into 2023. We listed 10 of them for this piece, making the case that this is arguably the best time to take interest in the space. Read on to learn more.
Please note: Investing in cryptoassets is risky. Due to the volatile nature of the cryptocurrency market, investors run the risk of losing their funds when they make an investment. Returns from cryptoasset investing are not guaranteed, therefore users should always be aware of the risks.
#1 Downturns are normal
The crypto market is famously volatile as the asset class is so young. Price drawdowns are normal and expected.
Like every other financial market in the world, the crypto market follows a cyclical pattern. This is largely because it is driven by human emotions. When the price of a token increases, it starts to look more attractive. This draws more interest and sends the price higher. The reverse is true in a downtrend.
Cryptocurrency market cycles move at hyperspeed versus other asset classes due to rapid advancements in blockchain technology and the disruptive potential of tokens. But while the space evolves fast, hype tends to get ahead of reality during bull markets. This results in more people entering the space as token prices surge. Many of them come in pursuit of quick financial gains, which further accelerates the speed of the cycle. Historically, when crypto bull markets have ended, loss of confidence in tokens has led to intense selloffs.
The token space has suffered harder over the past year due to the macroeconomic climate. The Federal Reserve and other central banks have committed to hiking interest rates to curb inflation, which typically leads to selloffs in risk assets. Thanks to the recent hikes, crypto has taken a hit.
The current crypto winter is the token ecosystem’s third following a hype-driven bull market.
Crypto soared to an all-time high value of $15 billion in November 2013 then retraced to $3.5 billion in April 2015. It took a 76% drawdown before the market recovered and increased in value.
The space entered a new rally in 2017, peaking at a value of $850 billion in January 2018. By the end of that year, it had bled to $100 billion, marking an 88% drawdown.
In the 2021 bull run, the value of the market topped $3 trillion for the first time. Earlier this month, the space dropped to a low of around $850 billion, marking a 72% decline from the November 2021 high.
*Disclaimer: Values presented are intended to display the current state of the crypto market. They should not be interpreted as a prediction of future market performance or financial advice. The values presented display the current low in the market—they do not reflect when the market will hit a bottom.
It’s important to note that volatility could continue in the crypto space. The market could extend its decline, and more projects could get flushed out. However, it’s also worth noting that crypto has already suffered a sharp decline from its highs.
Periods like this are when many seasoned long-term investors opt for the “Dollar Cost Average” strategy. This involves investing a set amount into a token at regular intervals regardless of the current price.
While market downturns can be unsettling, projects that stay focused on building have historically emerged stronger when the trend has reversed. Many of those who invest in solid projects at the right time have also done well from keeping a long-term mindset.
#2 Weaknesses in the ecosystem have been flushed
Crypto winter flushed out many big players that were operating on weak foundations.
Terra caused devastation when its UST stablecoin lost its dollar peg in May 2022. Its implosion impacted the entire market.
Terra’s collapse helped expose high-risk lending practices between a number of centralised entities. As giants like Three Arrows Capital and Celsius fell in June 2022, we learned that many companies had large exposure to Terra. They were taking on too much risk in their operations.
By far the most shocking event of the year, FTX went bankrupt after suffering insolvency issues. This was due to the company’s CEO, Sam Bankman-Fried, allegedly commingling customer funds with his trading firm, Alameda Research.
Though crypto suffered as several big dominoes fell, the damage would have been more severe if the collapses came after tokens hit mass adoption. Terra could have attracted more users, while Bankman-Fried could have grabbed more influence over the ecosystem via FTX.
The ecosystem is still processing the aftermath of FTX’s downfall. But it’s worth remembering that other major exchanges like Mt. Gox have collapsed in the past. The ecosystem has always survived.
After the events of 2022, the ecosystem’s foundations should be stronger and the community has learnings to reflect on for the future.
#3 DeFi is still working
The recent crypto downturn has seen several major liquidation events—unforeseen negative incidents that cause major price corrections and panic across the market.
These crises exposed weaknesses in many parts of the ecosystem. Most notably, the events highlighted the risks of relying on centralised services.
In turn, these events showed the huge promise of one of the cornerstones of the token ecosystem: DeFi.
Robust decentralised finance protocols like Uniswap, Aave, and Compound worked as normal throughout every major liquidation event of crypto winter, proving the ecosystem’s resilience.
Many token enthusiasts have also noted how DeFi provides a transparent alternative to the finance system. A shift to embrace DeFi over opaque centralised services could have prevented many of the incidents of 2022.
DeFi has seen a decline since its cambrian explosion in summer 2020, but its recent show of strength proves that the ecosystem could flourish in the future. Learn more about DeFi here.
#4 BTC and ETH still offer censorship resistant digital property rights
Amid volatility and uncertainty in the token space, Bitcoin and Ethereum remain the world’s biggest and most widely used cryptocurrency networks. Though BTC and ETH are prone to market peaks and troughs along with the rest of the token space, the core value proposition for the two assets hasn’t changed.
Bitcoin is still functioning as a global decentralised network for storing and exchanging value, and Ethereum remains the world’s most active decentralised application layer.
While the market has suffered over the past year, Bitcoin and Ethereum’s utility hasn’t changed. The top two networks offer censorship resistant digital property rights to millions of people around the world, and anyone with an Internet connection can participate.
With every new year that Bitcoin and Ethereum survive, their chances of dying decreases, a phenomenon known as the Lindy Effect.
While Bitcoin has worked with minimal changes over its 14 year lifespan, Ethereum has recently undergone several major upgrades, most notably The Merge to Proof-of-Stake. The change resulted in a 99% reduction in energy consumption and 90% cut in ETH issuance, which puts Ethereum in a good position to dominate in the future.
#5 Layer 2 is growing
In addition to The Merge, one promising development in the Ethereum ecosystem has been the evolution of the Layer 2 space.
Layer 2 networks are individual blockchains that run on top of Ethereum or other base layer blockchains to help ease congestion. It’s hoped that Layer 2 will make Ethereum more accessible by increasing transaction speeds and lowering fees.
There are already several Layer 2 networks that have gained notable traction, including Arbitrum and Optimism, two projects that use Optimistic Rollup technology.
With anticipation growing for other projects like StarkNet and more users starting to embrace Layer 2, 2023 looks set to be a strong year for the space.
#6 Cross-chain developments continue
As new blockchain networks have grown in popularity, the demand for solutions that enable cross-chain communication has increased.
Bridges like Stargate and THORChain have emerged in hopes of helping users move their assets between different networks, while cross-chain Layer 2 developments to connect the Ethereum ecosystem continue.
The Cosmos ecosystem, a network focused on helping individual blockchains communicate with one another in a seamless way, is also holding strong. Cosmos has many loyal users and developers, hinting that the ecosystem could be poised for growth in the future.
#7 Major companies believe in the tokenized future
Polygon has secured partnerships with Starbucks, Reddit, and Stripe. Visa has selected Layer 2 Ethereum network StarkNet to implement its new autopayments feature. Asset management giants like Blackrock and Goldman Sachs are offering Bitcoin products to their clients. Nike and Adidas have entered the Metaverse, launching their own NFTs and acquiring virtual land. Meta hopes to bring the Metaverse to life.
Confidence in the future of tokens has waned over the past year as prices have tumbled. But the recent wave of corporate crypto adoption has shown that many big players believe in the technology. Many of these entities came into the space as prices soared in 2021, but adoption hasn’t stopped over crypto winter.
As more and more corporate players enter the token space, the technology moves closer to mass adoption.
#8 The digital art renaissance continues
One of the major developments of recent years in the token ecosystem has been the NFT boom. In early 2021, non-fungible tokens went mainstream as digital artists like Beeple embraced blockchain technology.
By offering provable ownership of any kind of asset, NFTs could revolutionise the creator economy. While the token economy has recently declined, NFTs are unlocking new creativity every day, empowering creators and onboarding new people into the token ecosystem.
Many of the most sought-after NFTs have shown resilience against adverse market conditions over the past year, proving that there is real demand for digital fine art and other assets. Popular niches within the NFT space today include generative art, abstract art, and photography, but it’s likely the ecosystem will evolve in myriad ways over the next decade as gaming projects, the Metaverse, and other developments emerge.
The NFT boom that started in 2021 has been described as a “digital art renaissance.” Although NFT hype may have waned since last year, the renaissance is showing no signs of slowing down. Learn more about NFTs here.
#9 It’s still early
“It’s still early” is one of the token community’s favourite memes, but for now it’s still true.
Although crypto has seen increased mainstream attention in recent years, the space is not yet fully matured.
Bitcoin turned 14 earlier this month, meaning it’s only in the equivalent of its adolescent years.
Other major ecosystems are even younger than Bitcoin. Smart contracts, decentralised finance, and NFTs are nascent innovations. Plus, it’s likely that the ecosystem will produce new use cases that haven’t even been discovered yet.
The token ecosystem is still in an experimental phase. It’s likely there will be more technological failures, hurdles, and periods of uncertainty ahead. But steps like this are natural to achieving progress.
Being early has historically been one of the best ways for investors to succeed in the token space. While the ecosystem is young, there are opportunities for those willing to learn about the technology and ways to invest.
#10 token.com has a big year ahead
2023 is set to be a big year for token.com. While we can’t reveal all of our plans just yet, we can say that we’ll be expanding in more ways than one.
Throughout this year and beyond, our core mission will remain the same: to enable token discovery in a fun and snackable way.
We’re hoping to achieve this in a number of ways. They include in-depth educational content like this, a super slick app experience for exploring the token universe, and more. For now, we’re busy building, but you’ll hear more updates on what we have in the pipeline very soon.
Final thoughts
That rounds up the main reflections we’ve had as a team as we look ahead to 2023. Although the token ecosystem will face challenges ahead, our confidence in the promise of this technology has not wavered. We believe that 2023 will be a positive year for the ecosystem. We’d also say that it would be difficult for the next year to be as arduous as 2022 was.
While market prices are down from their highs, development has not stalled. Teams like ours are still building in hopes of creating a brighter future. As building continues, the tokenized future draws ever closer. Now is as good a time as any to stay interested, and the token.com app is the perfect place to learn more. Head to your to discover our latest Collections and dive into the ecosystem now.
Learn more about token.com here
