Should We Fear The ‘Crypto Winter’?

Historically, crypto winters have always been followed by a strong bull run that sees Bitcoin and various other tokens hit new all-time highs

Should We Fear The ‘Crypto Winter’?

By Vineet Budki

In the past few months, we all have read and heard a lot about the so-called ‘Crypto Winter’ and its impact on the crypto market across the world, including India. However, this is not the first time for such a phase of prolonged crypto bear market – it’s a cyclical event and happens every four years. Historically, crypto winters have always been followed by a strong bull run that sees Bitcoin and various other tokens hit new all-time highs. Assets are raised on perception and we can see how it has been taking shape for cryptocurrency. We need to understand that assets are meant to be volatile and they will fluctuate. Bitcoin has given us 3X returns in previous years, so it’s obviously an appreciating asset.

We can see that the energy and rigour in the crypto market has been replaced by fear and scepticism. 

The increasing volatility of this market, has sent the crypto startups into a frenzy, which has triggered budget cuts, delays in expansion plans and migration to other global crypto-friendly destinations. The Indian Govt. recently announced a 1% TDS in addition to the much debated 30% Tax on investment profits. With the country suffering from a liquidity crunch, we can see the market remaining subdued for a few more months before it bounces back.

However, there is a silver lining behind all this talk of gloom and doom. This crypto winter can lead to an increased maturity and stability of the crypto ecosystem. Projects with actual use cases of tokens will survive, as the Indian crypto ecosystem becomes stronger. Entrepreneurs who are focusing on crypto, should back their execution idea with a robust growth strategy and further leverage their USP and value proposition. With the right advisors and early backers on board, the crypto start-ups in India can easily identify the relevant communities and product-market fit. 

Product Build

One should invest time in understanding the overall business model and what metrics one can use to assess the overall trend of the underlying token. Projects which intended to capitalise on the fundraising aspect of crypto will fade out, while projects with an actual use case of tokens will become more prominent. Projects like decentralised banking systems using blockchain or open source projects on Ethereum are some examples which will thrive and stay. Those who have done their homework correctly and investigated and chosen the appropriate technology will survive.

Venture Capitalists’ appetite for crypto is still strong, despite sinking currency prices. Crypto venture capitalists are convinced that the crypto winter is just part of the industry’s broader volatility. Giant VCs are being bullish on India and have invested heavily this year. They have a vision that these start-ups with global or even regional footprints will emerge from this in the decade to come. 

Way forward for The Crypto Ecosystem in India

In many ways, this market crash can be considered fruitful for the Indian crypto ecosystem, since it would lead to increased maturity in the space. It‘s high time now that venture capitalists, as well as crypto companies, refocus their fundamentals. Only innovative companies with actual use cases can thrive in crypto. The current scenario offers significant opportunities for crypto companies willing to double down and build strong products that serve innovative offerings in the crypto sector.

The regulatory ambiguities regarding the taxation on Crypto in India, should clear up in a couple of years, and as this happens, crypto start-ups would need to adapt to these changes. The road ahead for the start-ups and investors is interesting as they will be the pillars for the growth of the ecosystem. Increased awareness and education about the potential of crypto will further boost the market for a range of products and services, other than just investing.

The author is managing partner and CEO, Cypher Capital

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