The crypto market has corrected disproportionately. Doubts replaced euphoria.
Martin Hobby, Portfolio Manager of Ciba Bank AG
What happens next with the three topics of decentralized finance (DeFi), non-fungible tokens (NFT), and metaverse, which have been irritating cryptocurrency investors in the recent past? With blockchain technology, existing processes and structures must be implemented more efficiently and easily (DeFi, NFT), but new digital worlds must also be opened with the metaverse.
A large number of projects have already appeared on the market and offer attractive solutions. Most of them have been given high praise in advance. The euphoria, which was fully justified, was dampened by economic and political realities.
But it would be wrong to simply write off DeFi, NFT, and Metaverse. Investors are advised to take a diversified approach to these issues in accordance with the rules of venture capital and try to properly classify the solutions on which the projects are based.
NFT a bubble of technological euphoria?
An NFT is more than a funny monkey cartoon that market participants were clearly willing to spend large amounts of money on. Institutional investors are definitely interested in using the opportunities offered by NFT. But high market volatility and slow corporate decision-making have not yet led to sustainable applications.
There are good reasons to assume that there are certainly projects that may be of interest to companies. NFT facilitates the clear and irrevocable assignment of assets. They are digital contracts through which ownership of real goods can be tracked at all times without the need for an intermediary.
The application in the field of intellectual property has great potential, especially because it can be used to implement compensation transparently and efficiently. This is where cryptocurrencies and blockchain technology can come in handy.
Revolution or marginal phenomenon?
The history of the financial market repeats itself. Decentralized solutions have come up many times before, always associated with high profit expectations, but the risks associated with them immediately call the regulator into action, and the whole thing is done within the confines of an existing system. However, rigid and well-established structures and processes are not easily replaced, especially because they always suggest stability and security.
The central point of DeFi is the democratization of financial services, which above all means lower costs and broader access. About 20% of the world’s population has little or no access to existing financial institutions. Blockchain technology has the potential to provide a solution to this problem.
There are already many blockchains on the market for DeFi applications. Most of these applications are based on the Ethereum blockchain. Credit and trading apps are the most popular. The initial euphoria that built up around DeFi has decreased significantly. The idea of making the financial market more efficient with blockchain-based applications will prevail, but it is currently difficult to estimate which projects will be the winners.
Metaverse – Reality goes digital
Well-established technology companies like Microsoft and Meta have taken to the topic. The focus is on integrating different systems that were not connected before. In the future, services and products should be made available in the Metaverse and allow users to interact in an expanded virtual world.
But there are also entirely new companies based exclusively on the Metaverse. For example The Sandbox (SAND) or Enjin (ENJ). They both exist in the world of virtual gaming platforms. Metaverse is another stage in the evolution of the Internet, which opens up new possibilities for collaboration and thus also provides opportunities for investors. The Metaverse is certainly a topic that should not be neglected, but investors need to be patient. Winning fast won’t be easy.
The decline in the cryptocurrency market in general over the past few weeks has certainly raised some questions about the sustainability of the topic. Investors dealing with crypto assets are not advised unless they look at the significant price gains in recent times. Detailed evaluation of projects is essential. Certainly the high volatility and market dynamics speak for a reasonably diversified approach at the level of the tokens and the overall themes associated with them.
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