In the third quarter, the global economy is currently on the brink of recession and most central banks are doing everything they can to avoid the worst-case scenario. In August, the US annual inflation rate reached 8.3%, while the inflation rates in the UK and Germany were even higher at 9.9% and 10%, respectively. The most common method to combat excessive inflation is to raise interest rates, but this can have a negative impact on the value of investment assets, with higher-risk assets being more affected. At this point, we may expect further increases in major interest rates, causing the market to further stagnate, with the correlation between Bitcoin and the S&P 500 index increasing, indicating that investors still consider cryptocurrency and risky stocks to be in the same category.
The merge is an update for Ethereum’s transition to a Proof of Stake (PoS) consensus that is technically flawless with no major issues. However, market conditions on September 15th highlight issues that the update cannot solve. The improved Ethereum cannot overcome the economic downturn and the prospects for cryptocurrency assets remain somewhat conservative. With Ethereum building its infrastructure through the merge, people are concerned about how the L2 ecosystem will adapt to the post-merge scene. However, the merge enhances the Ethereum ecosystem and paves the way for more efficient Layer-2 solutions.
Many projects in the Terra ecosystem have moved to the Polygon network, thanks in large part to the Terra development fund, a multi-million dollar initiative aimed at helping these projects migrate. Polygon was also selected to participate in the Disney Accelerator program, which is dedicated to expanding creative businesses. This year’s Disney Accelerator program emphasized artificial intelligence (AI), non-fungible tokens (NFTs), and augmented reality (AR) technologies. Additionally, Polygon plans to launch a new Web3 phone in partnership with tech company Nothing, based in London, which aims to “eliminate barriers between people and technology.” Their goal with the new Web3 smartphone is to enable NFTs to be downloaded directly to Android phones.
There are signs of revival in the entire DeFi ecosystem, with a 2.9% increase in Total Value Locked (TVL) compared to the previous quarter, reaching $69 billion in the third quarter. Ethereum remains the main chain, with its dominance growing to 69% from $48 billion in the previous quarter, a 3.17% increase. On the other hand, Ethereum’s merger has also witnessed the growth of Layer2, with TVL for Optimism and Arbitrum both reaching $1 billion, a significant increase from the previous quarter. Optimism increased by 263%, while Arbitrum increased by 35%.
The trading volume of non-fungible tokens (NFTs) has significantly decreased by 67% compared to the second quarter of 2022, but the sales volume of NFTs increased by 8.3% compared to the second quarter, indicating that the demand for NFT business is still high, and overall, the decrease in trading volume may be due to the decline in cryptocurrency values.
The GameFi industry continues to grow based on the profitability of blockchain games. Compared to last month, the number of independent active wallets in the blockchain industry has increased by 8% (912K), showing an upward trend. Many people assumed that if game Dapps no longer bring economic benefits to ordinary users, they will lose most of their player base. However, it seems that this has been proven wrong.
The EU has approved a regulatory plan for the cryptocurrency market, indicating that governments around the world are seeking cautious management of the industry. Similarly, in order to protect investors, the White House released in September 2022 the “first-ever comprehensive framework for the responsible development of digital assets”, which indicates that cryptocurrencies have become a mature industry.
However, as one of the riskiest industries, the performance of the cryptocurrency market in 2022 has been particularly bad. Moreover, it is fair to say that we have been in a bear market for a long time, but the third quarter was significantly better than the second quarter, when the market experienced one of the largest declines in history. It is worth briefly discussing the gradual but steady trend of governments adopting cryptocurrency laws, especially significant efforts to legalize stablecoins. While it aims to restrict behavior, the current introduction may greatly increase acceptance of cryptocurrencies.
Undoubtedly, there will be further bull markets, which may be much stronger than the previous one. This crisis can be seen as a quick market adjustment that eliminates the harmful “Ponzi economics” risk that cannot withstand the test of time. Every time the market encounters difficulties, it will eventually become stronger and the quality will improve. Many plans are in development, new market participants are emerging, and cryptocurrencies are not only financial assets, but also an indispensable part of future technology business.