What is the economic impact of cryptocurrencies?

Although the cryptocurrency market appears to grow in a positive feedback loop, that does not mean that (un)expected events may not impact the trajectory of the ecosystem as a whole. 

Although blockchain and cryptocurrencies are fundamentally meant as ‘trustless’ technologies, trust remains key there where humans interact with one another. The cryptocurrency market is not only impacted by the broader economy, but it may also generate profound effects by itself. Indeed, the Terra case shows that any entity — were it a single company, a venture capital firm or a project issuing an algorithmic stablecoin — can potentially set into motion or contribute to a “boom” or “bust” of the cryptocurrency markets. 

The impact of such crypto-native events with systemic impact mirroring traditional finance domino effects, and the consequential falls of Celsius and Three Arrows Capital, all indicate that the crypto-economy is not immune to failures. Indeed, while traditional finance has institutions that are too big to fail, the crypto sector does not.

Looking in retrospect is always easy, but the Terra project was fundamentally flawed and unsustainable over time. Nevertheless, its downfall had a systemic impact as many projects, venture capital and standing companies were exposed and heavily impacted. It indicates that investing in cryptocurrencies is all about thinking about risks and potential rewards. 

The fall and domino effect across the board indicate the lack of maturity of the very sector itself. 

Since innovation and prices are inherently connected and the early-stage development of the crypto-economy offers lots of untapped potential, the said economy may continue to see events that temporarily undermine growth. 

Yet, many working in the sector have a “trustless” conviction that strong projects will keep up during temporary corrections and that the cryptocurrency winter will clean up the path for a cycle of unlimited, novel disruptive innovation.

Purchase a licence for this article. Powered by SharpShark.