Although the cryptocurrency market seems to be developing in a positive feedback loop, this does not mean that (un)expected events may not impact the trajectory of the ecosystem as a whole.
Although blockchain and cryptocurrencies are fundamentally designed as “trustless” technologies, trust remains essential where humans interact with each other. The cryptocurrency market is not only impacted by the broader economy, but it can also generate profound effects on its own. Indeed, the Terra case shows that any entity — be it a single company, a venture capital firm, or a project issuing an algorithmic stablecoin — can potentially trigger or contribute to a “ boom” or “bust” in cryptocurrency markets.
The impact of such crypto-native events with systemic impact mirroring the domino effects of traditional finance, and the consecutive falls of Celsius and Three Arrows Capital, all indicate that the crypto-economy is not immune to the chess. Indeed, while traditional finance has too-big-to-fail institutions, the crypto sector does not.
Looking back is always easy, but the Terra project was fundamentally flawed and unsustainable over time. Nevertheless, its fall had a systemic impact as many projects, venture capitalists and incumbents were exposed and heavily impacted. This indicates that investing in cryptocurrencies is all about thinking about the risks and potential rewards.
The fall and the domino effect at all levels indicate the lack of maturity of the sector itself.
Since innovation and prices are intrinsically linked and the early development of the crypto-economy offers great untapped potential, said economy could continue to see events that temporarily undermine growth.
Still, many working in the industry hold a “no-confidence” attitude that strong projects will hold up during temporary corrections and that the cryptocurrency winter will usher in a cycle of limitless, ground-breaking disruptive innovations.
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