What does a bear-market ‘cleanse’ actually mean?

In his monthly crypto tech column, Israeli serial entrepreneur Ariel Shapira covers emerging technologies within the crypto, decentralized finance (DeFi) and blockchain space, as well as their roles in shaping the economy of the 21st century.

The post-mortem consensus on the crypto market crash among industry leaders ranging from Polygon co-founder Mihailo Bjelic to billionaire crypto investor Mark Cuban is that bear markets are a healthy way of cleansing the market. The latter even referred to a line used by long-time crypto critic Warren Buffet to express his opinion of the matter.

“Only when the tide goes out do you discover who’s been swimming naked.”

Of course, no one in the industry would dispute the claim that bear markets weed out the weak, or, in this case, the nakedly corrupt. But we’d be mistaken to leave the analysis at that as if more than $700 billion being wiped out overnight is something we should continue to accept from crypto markets. It’s important to understand the major factors in this last bull run that led to its massive demise, and how to foster a more stable market going forward.

NFTs: Blessing or bygone?

We’re five years out from the first monumental crypto crash spurred by the infamous initial coin offering (ICO) boom of 2017. As an industry still in its infancy, most of the projects sprouting during this period and driving investment were random coins claiming to be the next Bitcoin (BTC). The industry has developed quite a bit since then, and this time, other applications of blockchain drove the hype.

So, what was the last bull run’s version of scammy ICOs? Several factors contributed to the latest market boom that propelled Bitcoin to almost $70,000 per coin. But perhaps the most similar at their core — and yet often more ridiculous — to the ICOs of yesteryear were nonfungible tokens (NFT), a market that reached a whopping $25 billion in 2021. The industry perhaps reached peak hype when the NFTs from the Bored Ape Yacht Club (BAYC) collection were selling for hundreds of thousands — and later millions — of dollars in Ether (ETH). Celebrities got involved, as well as industry icons such as Adidas, Coachella and even the Super Bowl.

Though there have been major blockchains leading the charge on eco-friendly operations, such as Cardano and Algorand, allowing crypto holders the option to join in on the carbon market is another way to encourage sustainable development. Projects offering crypto-specific carbon credits or tokens tied to external carbon credits, such as CC Token, which opens access to investing in carbon credit futures for businesses and individuals, provide investors tangible value. Others are working to make the second-largest blockchain by market capitalization, Ethereum, more eco-friendly.

The crypto and blockchain industry has been defined by its rambunctious nature and revolutionary ambitions. While any emerging industry is bound to be subjected to volatility, downturns and roadblocks, the latest bear market should send a clear signal to projects: It’s all about finding a problem that needs to be solved, and actually using your product to solve it.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Ariel Shapira is a father, entrepreneur, speaker, and cyclist and serves as the founder and CEO of Social-Wisdom, a consulting agency working with Israeli startups and helping them to establish connections with international markets.