COVID-19 offers useful insight for investors seeking to understand how modern financial markets react to 21st Century crises. 

Some of the trends reflected financial orthodoxy, such as investors shifting capital from stock markets to safe assets in a bid to minimise their risk exposure to market volatility; however, the pandemic also tested how investors would engage with cryptocurrencies in such an environment. 

Looking at cryptocurrencies as a collective, higher investor demand led to significant price hikes during the pandemic. This was a result of its advantages over other assets; namely, liquidity and the opportunity (albeit with a higher risk) to deliver a significant short-term return. 

There were of course other factors at play, some linked to the blockchain technologies powering certain coins, but overall, it can be said that the pandemic ensured major coins like Bitcoin and Etheruem could reach record highs in 2021. 

Move forward 12 months and the situation has completely backflipped. The value of major cryptocurrencies has dramatically plummeted, shaving off years of gradual price gains. While it looks as though the market has effectively hit the price floor, there’s no telling whether cryptocurrencies are in line for another plunge in value. As you’d expect, this has sparked new conversations in the media around government regulations, public trust and more broadly, whether this is the beginning of the end for this form of decentralised finance. 

In June, BusinessCloud reported crypto-lender Celsius had paused withdrawals and transfers from its platform, citing market volatility and sharp price drops as the factors influencing its decision. More recently, Voyager Digital, a cryptocurrency lender based in Canada filed for bankruptcy in New York. While this collapse was linked to the company’s exposure to a hedge fund, it was also deeply impacted by crypto market volatility. Its stock price was trading above $20 last November but fell below $1 in June amid the crypto crash.

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Public confusion

In one respect, it is important not to generalise cryptocurrencies. The sector is inherently complex, and it is common for people to regularly interchange terms like blockchain, stablecoins, altcoins, digital currencies and tokens, with little context or understanding, adding to public confusion. 

For companies operating in this space, there is added incentive to educate the general public, be it commenting on trending news events or writing opinion articles which provide a basic overview of the sector. Public relations activities are integral to this approach, yet only a few businesses actually use PR, meaning they are rarely able to correct and provide clarity on broader market trends. 

Based on current events, there are concerns the crypto crash has undermined the willingness of private entities and the general public from embracing Web3 – i.e. the technologies informing the next iteration of the internet. While it has definitely led to a critical view of decentralised finance, it shouldn’t result in the complete dismissal of Web3 technologies. 

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Is Web3 the new internet?

The cryptocurrency market covered in the media is only part of a bigger financial ecosystem, powered by sophisticated technology like blockchain. Web3 also encapsulates technologies beyond decentralised finance to also include things like NFTs and the metaverse.

In one respect, the cryptocurrency market is facing immediate hurdles, but that doesn’t mean we should write off the long-term potential on offer from decentralised finance. We only need to look at the fundraising and acquisition activities taking place here in the UK.

In June, eBay acquired the NFT marketplace KnownOrigin. Launched in Manchester in 2018, the startup allows artists and collectors to effectively trade NFTs via blockchain-support network – one of the first tech startups to offer such a service. As Web3 grows, funding and eventual acquisition of startups specialising in next generation technology is bound to increase. 

Scepticism towards Web3 might be high, but so too was sentiment towards the internet when it had just been introduced to the wider public in the 1990s. Over 30 years later, it seems near unfathomable that such views were once held.