Has the crypto bubble burst?

The year 2021 was marked by the swelling of a colossal speculative bubble in the crypto markets. 

However, it was not the first crypto bubble ever, because there had been two others before, one in 2013 and one in 2017. 

By analyzing what happened after the previous bubbles burst, we can get an idea of what might be happening right now. 

The years leading up to the crypto bubble 

All three bubbles inflated in the year following Bitcoin’s halving. 

The first was characterized by a resounding rise in the price of BTC, partly because there actually wasn’t much else in the crypto markets. Just after the burst, in 2014, the Ethereum project was born. 

The second was characterized by a high growth of BTC, but more importantly by a resounding growth in the price of some altcoins, including in particular ETH and XRP. 

It was actually already in 2017 itself that many interesting projects were launched, including Binance, and after the bubble burst, between 2018 and 2019, the interest of some large companies and institutional investors began to grow. 

In particular, 2019 was the year of Facebook’s resounding announcement about its Libra project, later to become Diem and finally aborted, through which the famous social network wanted to establish a stablecoin. 

In truth, it was 2020 that was the key year, because after the collapse of the global financial markets due to the onset of the pandemic, Bitcoin and the crypto market reacted with a quick pre-halving recovery that made it clear to virtually everyone that these were assets not destined to disappear. 

So although the largest number of births of new crypto projects were concentrated during the last two bubbles, even after they burst, the crypto market continued to innovate. 

The analysis of DeFi by Forbes

In this regard, yesterday Forbes published an in-depth analysis of the DeFi world in the aftermath of the bursting of the last major speculative bubble. 

The article begins by saying that by now the irrational exuberance of the 2020-2022 bullish cycle in the crypto market has subsided, but then focuses on the outlook for DeFi protocols.

In fact, he points out that in the past 12 months, which is after the implosion of the Terra/Luna ecosystem, the major DeFi protocols have largely continued to run smoothly, despite the failures of crypto exchanges and regulatory actions in the US.

Indeed, it reveals that the very regulatory uncertainty in the US actually seems to bring more interest in DeFi services.

In particular, the article examines the insurance industry in the DeFi world, stating that so far none of DeFi’s insurance protocols have achieved similar success and scale as the major DeFi protocols.

But despite this, it argues that as long as the crypto ecosystem continues to grow, DeFi insurance is likely to grow to an attractive size.

He emphasizes the fact that it may still take some time, partly because at this time it is not yet clear whether DeFi protocols will be able to compete with traditional insurers. 

The new post-bubble projects in the crypto market

Perhaps even more interesting is imagining what might happen if new successful projects emerge. 

In fact, it must be said that during the quiet post-bubble phases of the past, that is, after the end of the following bear-markets, the thing that proved most interesting was precisely the emergence of new projects. 

The crypto industry evolves so fast that often a project ages within a few years. 

There are quite a few projects that really boomed during the period when there was a speculative bubble inflating, later surviving its bursting but never returning to success. 

When analyzing the major cryptocurrencies by market capitalization, excluding stablecoins, it becomes apparent that only Bitcoin is a first-generation cryptocurrency, and among the second-generation ones, only Ethereum is continuing to achieve success. 

The main first-generation altcoin is Litecoin, but it capitalizes just over one hundredth of Bitcoin, and less than 3% of Ethereum. 

The main second-generation cryptocurrency, besides Ethereum, is XRP, which capitalizes less than one-tenth of ETH. 

Among the world’s major existing cryptocurrencies, there is only one other second-generation cryptocurrency, namely Dogecoin, which capitalizes less than half of XRP. 

For example, the third major cryptocurrency, BNB, is a third-generation crypto, along with Cardano’s ADA. BNB however capitalizes less than a tenth of Bitcoin, and a little over twice as much as XRP. 

Moreover, among the top ten are also two fourth-generation ones, namely Solana and Polygon, in addition to Tron which is third-generation. 

Thus, it seems that over time, as the speculative bubbles burst in the crypto markets, many cryptocurrencies survive, but the older ones tend to lose the propulsive momentum that made them take off during the bubble. 

Instead, they are often overtaken by new crypto projects, which then perhaps in the long run end up doing the same. 

The exceptions

To date, only two cryptocurrencies have shown themselves capable of achieving major new successes even after a speculative bubble burst, namely Bitcoin and Ethereum. 

However, it should not be forgotten that some of the major altcoins, such as BNB and Dogecoin, made a splash during the last speculative bubble, that of 2021. BNB was born in 2017, and at that time it failed to achieve what BTC and ETH were achieving, while DOGE in 2017 did not make resounding gains. 

In fact, even ADA achieved its great success in 2021, while XRP achieved it in 2017 and has not been able to replicate it since.

Therefore, it seems that after an eventual boom due to a colossal speculative bubble, only Bitcoin and Ethereum so far have shown not only that they can withstand it, but that they still have ample room for growth. 

At this point, it will be very interesting to observe the behavior of BNB and DOGE in the event of a new big speculative bubble, because as of today they seem to be the two biggest candidates to be on the very short list of crypto assets capable of replicating booms due to speculative bubbles several times over.