Can the Digital Asset space be considered “Mature” in 2023?
Maturity is a word issued quite often in the asset management space and is vital in determining the sustainability of the asset class or other investment instruments. Now just like the maturity we found in a teen growing to an adult, we also see some stabilization in terms of the Digital Asset value throughout 2022 and early 2023. After a chaotic couple of years for the DeFI space, can it finally be considered mature in 2023? And how optimistic can we be for its growth in the years to come?
DeFI a Maturing Space….
Throughout a couple of years ever since the Bitcoin boom in 2011 and 2013, industry experts were quick to characterize the Digital Asset as a volatile and speculative asset class. They were not wrong as throughout its 15 years of history, Bitcoin has experienced quite a few peaks that were followed by a steep decline in its pursuit of supremacy. Two of them occurred as recently as 2021 and were only separated by a single month between them.
This was just a snapshot of its history and in no way a determining factor of its potential in the long run. Bitcoin is an amazing invention that has changed many aspects of the digital world but its value is continuously swayed by multiple factors that have no relation to its potential. What I mean by this is that its decline was mainly because of external causes such as speculations and not because the Bitcoin Network in general is not performing well.
How does this relate to maturity? If we look at the essential meaning of Maturity, it represents a situation where the market realizes the true value of how much an asset is actually worth and further corresponds to a stable valuation in its market. The problem in the market is Bitcoin does not have a real or intrinsic value and people are valuing this revolutionary digital asset purely on its speculation aspects instead of the enormous breakthrough the Bitcoin Network represents.
The common question that comes with this is how much does Bitcoin worth. No one can pinpoint an answer as its value is perceived differently by people hence the volatile value in the market. These concepts then translate to the entire DeFI Space such as NFT which uses the digital asset as their medium of exchange and as the value of the digital asset continues to change so does the whole DeFI Space. This is a good scenario if we flashback to 2021 where every valuation is as high as it can be but unfortunately, good things don’t last forever.
This whole idea represents an important part of determining whether the DeFI Space is mature and stable or whether another “Crypto Winter” is just around the corner. We can see what happened in 2022 as the value continued to decline throughout the first part of the year, the second part of the year was much more stable as we can see from the price of Ethereum which was hovering around the $1800 to $1100 mark respectively. Just when we thought everything was fine and the worst was behind us, the DeFI space had to witness two major crashes in the form of Celcius and FTX.
The keyword that is somehow always missing in the DeFI Space and is searched by most of the users is “Certainty”. The word certainty is closely related to Maturity as users can always know what to expect from an Asset class in terms of its performance but right now in the DeFI Space, there is not much of it. On one day the whole DeFI seems to be fine and the other day a single tweet can change the whole course of its recovery. Certainty and Maturity do come as time comes along but DeFI is not at the point it wants to be right now as the world is heading into a digital era.
Of course, this is all in the past and 2023 has brought upon a much-stabilized market for the Digital Asset Space. Due to the high-interest rates imposed by the government, we see less influx of capital into the Digital Asset space which translates to lesser wide swings in its prices. Some researchers within the space also point out that the DeFI Space also starts to show signatures of maturity through the first quarters of 2023 but it’s still a far benchmark to resemble the maturity in the equity market.
These high-interest rates also act as an eliminating factor for companies without proper risk management structure which should go a long way in ensuring that proper liquidity is maintained within the space. Regulations also play a huge role in ensuring maturity is achieved in the DeFI Space and it is up to the institutions with the government to keep up to date with the ongoing changes and adoption happening in the digital space.
All in All, Maturity is an ongoing process, not a journey and it might take a while before the DeFI Space is considered a “Mature Market”. It takes decades for any large enterprise and asset class to establish its foundation and grow in maturity so the DeFI space still has a lot of time to catch up. The signs it has shown so far in 2023 are already good enough progress from its treacherous 2022 but in the meantime, we might still need to adapt ourselves to the wide swings!
How optimistic can we be for the future?
The progress made for 2023 should be a good enough sign for what might happen in the long run but if you are looking for another sign, optimism is the regulation. One of the greatest boosts to emerge during the rise of DeFI was the willingness of the government to continue to regulate this space instead of neglecting it. The regulations introduced in 2022 like the license for VASP or the FATF travel rule were the result of continuous teamwork among all the stakeholders within the DeFI Space.
These regulations will then form a backbone onto which the DeFI Space can be operated sustainably and securely. Just like in any asset class as time goes by, the market will start to realize what the market is worth while maintaining sustainable growth from that value. The decline in the price of digital assets throughout 2022 was also a blessing in disguise as these values start to normalize and go back to their original value.
As mentioned before these declines in prices of digital assets also are effective in sorting out which firms and institutions are run sustainably. This then becomes good news for all the users as they can rest assured that the DeFI ecosystem will not go through its Winter Phase again. We all need to wait if these will take effect or not but transparency provided by the blockchain network can be a guide for every user who wants to do their research.
Of course, at the moment we can be optimistic with all the advancements and innovations made by the DeFI Space in 2023. What the firms and users need to do right now is to learn from the history of what happened throughout this decade and invest in ideas that will lead the DeFI Space into a much more sustainable future. The question is which one of these institutions within the DeFI Space will be the first one to provide these breakthroughs.
We hope that the development that is going on should be able to help the recovery of the DeFI space. That is also why we created the world’s first hybrid digital assets called Nagaya which will soon be a part of the revolution towards sustainable Digital Assets growth for the Global DeFI space. Interested to know more about Nagaya, you can visit our website at www.nagaya.co
Or you can talk to us at t.me/nagayaofficial
