Since the beginning of May, cryptocurrency values have decreased dramatically, including Ethereum's ETH, which is home to some of the most prominent NFT projects and platforms. The value of ETH has more than halved in comparison to other “fiat” currencies like the US dollar or the Euro.
While macroeconomic factors are vital, there has long been a sense that the market was overheated and needed to be corrected. The bull cycle ended abruptly with the bankruptcy of Terra-Luna, evaporating an estimated $42 billion.
Enter the “bear market.”
Three stages of a bear market
People who entered crypto (and its latest appellation “web3”) in the last 1-2 years are apt to think of bear markets as instances when enthusiasm simply dies down, but it goes far deeper than that and is incomparable to the hype in cultural realms. A Twitter thread by crypto veteran Jason Yanowitz gives a combative explanation.
1/ There are 3 stages of a bear market.— Yano 🟪 (@JasonYanowitz) June 13, 2022
We just entered stage 2 🧵
Stage 1: The Unwind The excitement (and greed) from the bull market still exists. Mini-narratives pop up for weeks at a time. Assets still have floors. Valuations are cut but companies don't make the tough decisions (kill products, layoffs). Things seem alright.
Stage 1 doesn't *feel* like a bear market. It feels like prices have pulled back to "realistic" valuations. Investors continue allocating, builders keep building... In general, life is good. Only the weak hands sell.
We've reached stage 2 since the Terra-Luna collapse:
Stage 2: Forced Capitulation This is where it gets ugly. Narratives die. Prices fall 90%... then another 90%. Layoffs across the board. Mainstream media and cynics rise up in Stage 2. They laugh and shout "I told you!"
This eventually leads us to stage 3: winter.
9/ During Stage 3, you'll want to walk away.— Yano 🟪 (@JasonYanowitz) June 13, 2022
Regulators will kick us while we're down.
Your favorite Twitter degens will go quiet.
Web2 investors will quietly stop allocating.
Talented builders will leave.
Companies will shut down.
You'll question every assumption you had.
That idea is terrifying if you are developing in web3. Very frightening. Not because you don't believe in what you're doing, but because you don't know how it will pay the bills. Even if you have a sound revenue model or have acquired funding, it may be difficult to attract talent or general interest since people may have moved on to the next bright thing like the metaverse.
The unfortunate fact is that music follows the money. Artists must make difficult decisions regarding how they will pay their bills in order to focus on their work full-time. With gigs gone at the beginning of the pandemic, others moved to live streaming and creative economic system models like Patreon, which eventually gave way to 'web3' with artists learning how to market their art as NFTs. They introduced a new market for their art that settles above 'feels like free' streaming pricing, paid downloads from websites like Bandcamp, and closer to what one could get compensated for a gig, but in this particular circumstance, all the value is transferred by a single person or community of people rather than an entire audience.
However, the NFT economy is stalling. According to the NFT market tracker NFTGo, trade volumes among so-called "blue chip NFTs" have decreased. Blue chips are among the industry's most popular and well-known NFT collections, and so give an excellent snapshot of the overall market mood. In USD terms, the volume has been cut in half.
A project like Songcamp Chaos, with full backing from the space and an incredibly creative approach, would have simply sold out only months ago, but it has only sold roughly half of its 5,000-pack collection so far. Yet, just 188 genesis membership passes have been sold by Venice Music, with sales centering around the debut day. Not long ago, this would have looked different as well.
In summary, it's difficult to sell NFTs right now, and the amount of money NFT sales may make in dollars has plummeted. As a result, musicians and other artists may spend less time creating since they will need to find other methods to make a living.
What it doesn’t mean for music
Web3 is not 'dead.' All that was there remains. Web3 refers to the infrastructure, technology, and methods, not the buzz. Projects with weak theses will fail, as will their supporters (think: cash grabs). Their DAOs will fade away.
In the instance of the COLORSxCOMMUNITY, with the beginning of the concept of how COLORS may long-term weave its audience into itself (and vice versa). That community occurred before the incorporation of web3 technology. The motivation for incorporating web3-tooling is equity: not necessarily monetary assets, but equity as a basic principle. It was wanted for the community to be equal for its members, and while web3 has a lot of challenges, it is still the simplest approach for communities to achieve completely equitable outcomes.
Organizations and individuals who work along these lines will always look for reasons to explore, build, and so on.
Consider this: take away all earnings from an artist. Will they cease creating music? No.
Will they take a month off to tour and do a slew of free engagements that they were previously compensated for? Unlikely.
The 'bear market,' as some call it, is also known as the build market. As the market heated up and the music industry embraced web3, people began to see a slew of issues develop. These vary from technological challenges in transitioning to web3, to environmental concerns, to the formation of communities with massive economic moats (pay-to-play), to speculators pump-and-dump on legitimate enterprises. All of these problems, and many more, now have domains for builders to come in and offer specialized solutions.
Many web3 organizations have squandered a lot of time and money in the last year or two. If your community has a liquid token, users may pay out their membership whenever they choose. This motivates organizations, particularly their elected leadership, to pursue initiatives that maintain high token prices. Unfortunately, these token values are influenced more by buzz, speculations, and emotions than by genuinely meaningful contributions like public goods. However, in a bad market, speculation ceases. There is less motive to create excitement, and because expenditures are much smaller, there is far more need to produce with concentration.
Ideas alone are no longer sufficient. It's time to execute with determination, without hesitation, and with a dedication to making difficult decisions quickly.
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