Retail traders are watching from the side-lines – institutions are still in the game
Speculative traders seem to have disappeared from the crypto space in 2022, as the fear-of-missing-out trends driving the price rally in 2021 has now gone. Additionally, non-fungible tokens (NFTs - digitalised versions of items, images, videos, etc.) are trading at record-low volumes over the past year, confirming the cooling of the speculative trading mania. One bright spot in the crypto winter seems to be the institutional interest, which has not faded in the same way as with retail traders of crypto. During the past couple of months we have seen multiple bigger institutions investing in the crypto market or expanding their services within digital assets, despite the crypto market rout. Examples are BlackRock who announced a partnership with Coinbase to expand their crypto investment services to institutional investors, and Brevan Howard raising more than $1Bn for a crypto fund from institutional investors.
Cracks are however starting to appear. For example, Snap announced a layoff of their Web 3.0 department at the beginning of September, and crypto trading firms are looking to reduce their headcounts due to the crypto market conditions. The number of developers in the crypto space has been declining throughout the past three months according to Artemis, but the record-high amount of venture capital which has flown into the crypto space in 2021 and beginning of 2022 can hopefully keep crypto organisations flowing for some time.
We see applicability as the driver for cryptos going forward. We will likely see a shift from investments into random crypto tokens and NFTs into crypto technologies with a specific use case. Some are already in the pipeline: Sony is looking into creating NFT-backed media to give the artists faster and more equitable agreements; GameStop is developing the ownership of digital items in games through NFT technology; and Ticketmaster has entered a collaboration of issuing tickets as NFTs.
The crypto winter is changing the crypto market into a more mature and healthy one, removing speculators and unreliable businesses. The key focus from here will be on the scalability to be able to process more transactions, for example, for payment processing, as this is crucial for developing crypto applications. It is important for cryptocurrencies that larger institutions embrace crypto applications to show that cryptos are more than an arena for blockchain enthusiasts and speculative traders. And this is of course while hoping that regulators will not put a stick in the wheel due to environmental concerns.