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After the fall in value of all cryptocurrencies and the crypto crashes of the past few months, the professional and less professional public debate has pondered the question: is this the death of crypto or just another winter? seasonal crypto? From the perspective of Hartmut Giesen, digitization expert at Hamburg-based Sutor Bank, blockchain – and thus also crypto assets – continue to offer growth opportunities in the digitization of trust. Of Hartmut Giesen, Business development and digital business models, Sutor Bank*
! This article originally appeared in Bond in early August 2022Guide-Annual edition “Digitalization, Crypto, Fintechs 2022”!
Cryptos are obviously not all that one believed or hoped for – the last few weeks have shown: they are not a hedge against stocks. Cryptos and stocks, especially tech stocks, fell in tandem. Cryptos have also failed as an inflation hedge so far. They have depreciated much more in value than ordinary currencies. The narrative of cryptos as digital gold had become fragile even before the current crisis.
Two main arguments for cryptos
Two arguments are always made by crypto “disciples”: bitcoin may not be worth anything by nature, but blockchain technology has a value that will prevail sooner or later. Skeptics counter that blockchain has been around for 14 years and despite the investment of millions in VC funds, there has yet to be a compelling use case with sustainable monetization – so when is it supposed to arrive ?
The second argument is that cryptocurrencies have repeatedly experienced steep declines followed by longer crypto winters. After some time, the prices of crypto assets repeatedly exceeded their pre-crisis values. This argument is in fact well supported empirically. And it also seems clear that in the decline, as now, the skeptics gain discursive dominance, while in the ascent it is more the “disciples” who determine public opinion with their arguments.
What Drives Crypto Lessons?
So the question remains as to what drove crypto prices back after each crisis, whether it will do the same in this crisis, and if so, whether it will benefit the buy and hold investors who are now invested.
The fact is that in the development of crypto assets, the laws of the capital market and the adaptation of technology are mixed and it is not always entirely clear which force is the most effective. Capital market movements can be explained by macroeconomic and firm-specific developments. The adaptation of technology can be described with cycles of hype. As a result, new technologies raise inflated expectations, which are inevitably disappointed, leading to the valley of disillusionment and then the plateau of productivity.
We have already seen several cycles in crypto assets, which is partly due to the fact that crypto or blockchain consists of a variety of technological approaches with different applications “buzzing” at different times. This can be seen, among other things, in the fact that we have always been able to observe new crypto applications in the hype: ICOs, Smart Contracts, DAOs, DeFi, NFTs, etc. In the meantime, consultancy Gartner has launched its own crypto release hype cycle, on which you can see the status that can track crypto use cases and technology.
Fall driven more by capital markets
It is probably indisputable that the current crypto crisis was caused more by a capital market-induced crash and less by a technological disappointment. Crypto assets, like all risky assets, which include equities and especially tech stocks, fell in line with macroeconomic developments. Developments in crypto assets may have been bolstered by some key use cases heading down the Gartner Hype Cycle, including tokenization, DeFi, and smart contracts.
The good news is that continued adoption of technology will drive values back up as they reach the productivity plateau. To appreciate the potential for “bounce back” at high levels, it is worth considering the two central and intertwined achievements that blockchain technology has brought to the world: the digitization of value and trust – whereby the digitization of value is based on the digitization of trust.
Potential: “blockchaining” trust
According to a study by RMIT University In 2010, 35% of staff costs were caused by work on and in the fiduciary infrastructure, and even 45% in the financial sector. Trust is understood here in the technocratic-institutional sense, as it is “produced” by courts, notaries, auditors, banks or stock exchanges. Blockchains are not intended to replace societal or individual trust. Blockchains replace trust where a lot of effort has gone into allowing actors who don’t “naturally” trust each other to interact with each other, as is necessary for many business processes.
This marks a maximum potential that can be exploited with blockchain technology (a sort of equivalent of the total available market). Clearly it is neither desirable nor feasible to blockchainize the entire trust infrastructure – because in many cases you don’t want a smart contract to be executed “straightforwardly”. But there are countless trusted processes that can be digitized and automated. A look at the capital market and the effort there to eliminate counterparty risk – essentially trust risk – gives an idea of the type of “trust use case” and the resources that can be saved. thanks to the digitization of trust.
In the article to be published of the hype cycle for blockchain and Web3, Gartner notes that from their perspective the “killer app” for blockchain is still lacking, but gives some hints as to how and where it might emerge: including through combination with d other technological approaches such as AI, IoT or Web3. In these technological networks, the mission of the blockchain is then to take over trust processes in the form of smart contracts or digital management of the assets created.
Conclusion: Which cryptocurrencies will benefit?
The bad news is that while we can predict with some probability that blockchain technology, and with it associated cryptocurrencies, will rebound in value, we don’t know if this is specific to bitcoin or ether, where the most investors are invested. It highly depends on whether Bitcoin proves to be a central bank-independent money and/or value storage system and whether Ethereum develops into a platform for decentralized mass market applications.
*) Hartmut Giesendigital business development, fintech & crypto/blockchain partners at Sutor Bankhas been implementing digital business models since 2012. His responsibilities include fintech business development, digital partners and crypto/blockchain, setting up and expanding the Sutor banking platform and overseeing internal digitization projects.
 The cost of trust: a pilot study; The Journal of the British Blockchain Association, December 2018; https://www.researchgate.net/publication/329400758_The_Cost_of_Trust_A_Pilot_Study
 Gartner Hype Cycle for Blockchain and Web3, 2022: https://blogs.gartner.com/avivah-litan/2022/07/22/gartner-hype-cycle-for-blockchain-and-web3-2022/