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1 July, 2022

The Stock Markets & Crypto - Web3 Oversimplified

The Crypto Economy --- A Ferris wheel built on quicksand!

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Introduction

The past month in the crypto space has been a hinterland of recurring disheartening headlines that goes along the lines of “Prices dropping, mass selloffs, and lives being destroyed”
Well-known celebrities and famous public figures have called into question the essence of the importance of web3, while those of the same class of people that pushed the idea of web3 have gone silent.
All these would leave one wondering, “is web3 the future?”, “Has the web3 bubble finally burst?”, “Have web3 finally seen its peak?”.
These questions are legitimate and have life-changing consequences for the average individual if not adequately answered.
We are currently experiencing the steepest crypto crash since the crash of 2021, resetting almost two years of crypto market growth. Experts say this could be the end of an era, the future of the crypto golden age, as some might call it.
This article will examine one of two crucial talking points: How the stock markets control crypto and Post Luna Crash.

The Stock Markets & Crypto

For the past months, experts and crypto degens have observed apparent signs of a direct correlation between the broader stock markets, like the S&P 500, and the crypto economy.
To put this into plain English, it means that whenever the stock markets rise, crypto rises as well and vice versa.
You may be wondering, “Is this a bad thing?” Well, It may seem so because the entire sale point of crypto is that it should be used as a form of alternate currency revolving around its economy.
Let’s get a little back story into the picture to help better you understand how this does not sound good for the future of web3.
When Satoshi Nakamoto created the first cryptocurrency, Bitcoin, in 2009, highlights from the Bitcoin whitepaper suggested that Bitcoin was created as an alternate form of payment, equipped with its economy, utterly independent of government-issued currencies and economies. This means that the vision of crypto right from its inception was for it to be isolated from world economies.
A direct link between the greater stock markets (i.e., centralized financial instruments) and crypto (i.e., which is supposed to be decentralized) calls into question the entire existence of the term decentralization.
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(Source — Bloomberg, Correlation between U.S tech stocks and Bitcoin)
Web3 is all about decentralization! Studies show that the future of web3 now rests on the shoulders of the broader stock markets.
Studies have also shown that Bitcoin moves in tandem with the stock market, and other cryptocurrencies move in tandem with Bitcoin.
What does this ultimately mean? It could be one of many things, but most noticeably:

When a recession hits, crypto will take an even bigger hit.

When there’s a bear market in the stock markets, crypto will also experience a bear market.

When there’s a bull market, crypto will also experience a bull market.

Crypto is becoming a more risky asset for investors.
In other words, crypto markets will feel the aftermath of every fear aimed at the stock markets. This reality unequivocally is terrible news for crypto and the future of web3.
Web3 is slowly becoming another financial instrument in the much broader stock markets, and with regulations already on their way, it could become much worse than it is today.

What’s the way forward for Web3? The Practical use cases

Now that we’ve deduced that it is a fact that the crypto economy is now tightly tied to the greater stock markets, we can now accurately assume that the foundational principles of crypto have been compromised.
However, this isn’t entirely the case! What we are experiencing today is a far cry from what popular opinion would love us to believe.
Let’s look at the other parts of web3 whose core existence isn’t entirely compromised.

NFTs

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It may surprise you that the NFT world hasn’t been severely affected in the same way that the leading cryptocurrencies have been affected.
Let’s get some numbers in, in the past month,

Bitcoin is down by -32.35%

Ethereum is down by -38.79%

BNB is down by -23.93%
On the other hand, NFT collections like the Bored Apes Yacht Club and Azuki are up by more than 10% on average.
NFTs are like the golden assets of the crypto space, and why is that? What is meant by this statement?
Traditionally, during a recession, financial experts would advise people to invest their money into fixed assets. Experts give this advice because, as the dollar depreciates, everyday products that are necessities to life appreciate, like real estate and cars.
NFTs are gradually becoming a way to safeguard your assets from further depreciation and a fantastic way to make more on your investment.

In the crypto world, a recession is called a crypto winter.

Stable Coins

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This one is a no-brainer if you’re already emersed in the web3 rabbit hole.
Stablecoins are nonvolatile crypto tokens pegged against the dollar or any real-world financial currency or instrument like gold and diamonds.
At this point, we all know that most cryptocurrencies are deflationary and highly volatile. Their prices change every second. This high volatility makes the assets unpredictable and easy to turn a loss and even harder to make a profit.
Stablecoins reduce the risk of losing the actual value of your assets/investments by being pegged to the dollar.
Money transfers and instant payments can be made using stablecoins. Because stablecoins are pegged against the dollar, trust between parties is assured.
The most popular and most trusted stablecoins out there are the USDT (Tether USD), BUSD (Binance USD), and USDC tokens.

DAOs

Decentralized Autonomous Organizations or DAOs are organizations/companies that are run by smart contracts. There is no central head of command, and every member is essentially a company CEO.
Though the crypto winter/recession might affect the incentives part of being part of a DAO, the concept of a DAO is still essential and is still very important despite a bear market.
Despite the fact that the foundations of web3 may be compromised because the crypto economy is almost certainly tied to the greater stock markets, there is still hope for the future of web3.
Web3 shouldn’t be about the current price of Bitcoin. Web3 should be about decentralization and what can be achieved by it.
Just a quick reminder or a summary to those who aren't sure of what decentralization solves:

Transparency

Anonymity

Immutability

Reliability

Data rights

Ownership and Identification

Monetization
Though the monetization aspect of web3 is being greatly affected, it should not be a reason to doubt the overall concept of web3.

Conclusion

The crypto economy and the stock markets act as one these days. One of the critical foundations of web3 has been compromised, and most people are already turning their backs on its future, but despite all these, this is the best time for builders, and there will be light on the other side!
Thank you for reading; I hope you enjoyed this article and see you in the next part!
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DevRel 🥑 Showwcase | Software Developer | Content Creator | Technical Writer | I am on a journey to make Web3 accessible to everyone 💛

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DevRel 🥑 Showwcase | Software Developer | Content Creator | Technical Writer | I am on a journey to make Web3 accessible to everyone 💛

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