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Learn from FTX and stop making speculative investments

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People were drawn to FTX by speculative investing. Let’s hope they start looking for value-based propositions now that we’ve seen the results.

More than simply another cryptocurrency exchange failing is highlighted by the FTX collapse. It serves as a reminder that the industry needs to mature and embrace value. Here is the rift in values.

The second-largest cryptocurrency exchange globally was FTX. It has now become a metaphor for the death rattle of insane sums of money being put into updated, centralized business models that have been given a veneer of fake decentralization.

Only after the tide goes out do you find out who has been swimming naked, as great investor Warren Buffet is quoted as saying. It appears that there were some nudists throughout this most recent round. But surely this has happened before. Not exactly, in actuality. At the beginning of the longest financial market bull run in history, Bitcoin BTC, now worth $17,098 debuted. In the best of circumstances, the industry it gave rise to practically exploded. But everything nice comes to an end. Regulators eager for control and deteriorating macroeconomic conditions have created an unfavorable convergence for the cryptocurrency industry.

Washington, DC, will experience ramifications of the FTX catastrophe for cryptocurrency

Meanwhile, careful, value-based investing has resumed in traditional markets. Simple logic explains why: Money was free while interest rates were extremely low. It’s not now. Due to the fact that enterprises that generated money were not valued when it was free, the astronomical rises of Uber, Airbnb, and DoorDash were made possible. But promises are insufficient today. Before putting up their progressively more expensive capital, investors will require proof of value.

With the fall of FTX, value-driven investment will be possible in crypto markets for the first time. Tokenomics was a hoax; for evidence, check FTX Token FTT $1.31. And economics is, regardless of how much we disregard its lessons during economic booms. Both the supply and the demand exist. Markets operate when they are in equilibrium. Markets do not operate if they are not.

We now understand that centralization in cryptocurrency markets is ineffective. Profit-hungry con artists have far too many chances to take advantage of folks who are unfamiliar with complex technologies. The outcome? fancies of those who thought there was a pot of gold at the end of the crypto rainbow were dashed. The value schism, however, shines a glimmer of promise amid the rubble.

What causes the value division?

According to industry jargon, crypto is currently experiencing a “hard fork.” After the FTX dust settles, those who are still standing can either continue making naked bets in the hopes of finding a “bigger fool” or they can go looking for value that can be gathered and supplied to users. Some will continue on the latter course. Weak habits persist. But as investors want more, they will disappear. Web3 initiatives that provide actual value by going back to traditional commerce will grow in popularity in the interim.Those who are successful will receive enormous rewards. The end will come quickly for those who are only delivering the same old cheerleading of the past.

Operating inside a new paradigm

Within the value schism, there are two principles to take into account. The first describes cryptocurrencies as a type of financial asset, and the second describes blockchain as a support system for technology.

The fact that there isn’t a working model for pricing protocols is what makes evaluating cryptocurrencies as a class of financial asset difficult. This is to be expected in a young business. Early on, there were no standards by which to judge these networks. For developed markets, retrofitted ones were constructed. Since then, crypto has changed. Now that we have a basic understanding of the many applications of decentralized finance (DeFi) protocols, we can classify networks.

Bitcoin is a widely dispersed proof-of-work chain that is slow but secure. Both the number of wallets that have Bitcoin and their interactions with the network are visible. It is possible to calculate the value that is sent via the Lightning Network, the secondary transaction layer.

A proof-of-stake chain is Ethereum. It is the lifeblood of DeFi even though it is more centralized than Bitcoin. Total-value-locked computations are a technology introduced by DeFi to aid in value assessment. The development of sophisticated financial gauges outside of conventional institutions is very interesting, even though they have certain limitations. Evidently, traditional finance agrees, which explains the rising regulatory emphasis.

The key point is that trading Bitcoin or Ether in 2016 had a similar feel. Now that these networks are more differentiated, we have a variety of data-driven metrics to evaluate them. As it develops, cryptocurrency is becoming a verifiable asset class.

The development of functionals

Functionals, or goods and services offered by blockchain, are non-financial Web3 assets.

Consider a ZK (zero knowledge) proof. A prospective homeowner wishes to demonstrate to a real estate agent that they have the necessary funds without disclosing the specifics of their account. They can use a ZK to pay for this service to be provided. They aren’t trading or retaining any assets; instead, they are paying exclusively for a service that protects their anonymity.

There are a lot of new data handling initiatives emerging that provide services like identification tools, cloud storage, and search and indexing. They are relatively reasonably priced compared to their centralized competitors thanks to their decentralized infrastructure.

The demise of FTX is neither exceptional nor conclusive. The system is being infected, which is made more difficult by downward pressures brought on by macroeconomic forces. But once everything is said and done, FTX will enter the cryptocurrency narrative as a growth ring, serving as proof that a fire passed through and left behind hardened systems that will increase value. Blockchain ecosystems will be forced by the value split to choose one of two directions: either continue to rely on hype cycles to make speculation-based gains, or develop models that reveal true user value.

Blockchain-based technologies are finally maturing, much as personal computers did from hobbyists’ garages to workplaces and pockets throughout the globe.

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