The cryptos and Kondratiev Waves

Good evening, everyone,

I received several messages today wondering what I thought about the crypto market in the long term. I decided to do a small post that reflects my opinion.

My view is that the crypto market is a kind of traditional market but condensed. Everything goes faster, stronger and more intense. Whether it is volatility, rumours, progress and setbacks as well.

And the same applies to the Kondratiev cycles. For those who are unfamiliar with it, this is the theory that the economy evolves in cycles of increases and decreases, logically due to increased production, competition and the elimination of the less profitable.

Indeed, growth phases bring capital, everything turns and we are satisfied with what we have. Nothing changes. But then comes a decline in economic activity during which prices fall, due to an excess of supply (in number of cryptos for example), a decline in demand (overvalued use) and a decline in investment that leads to a decline in demand for money, allowing the system to be purged and paving the way for a new growth phase.

But what is interesting in this theory is the role of technological revolutions. Because to the Kondratiev cycle, Schumpeter links the fluctuations of the economy to the emergence of major technological innovations. Thus, according to him, the growth phase corresponds to the period of diffusion and amortization of new innovations.

During this period, demand is strong, which allows for a general increase and therefore ensures economic growth. Gradually, when demand is met in innovation, demand declines, while competition between companies is increasingly fierce. This brings us to the turning point of the cycle. In the classical economy, the phase of decline corresponds to the elimination of stocks, the closure of the least profitable companies and sectors, what Schumpeter calls the phenomenon of "creative destruction" and the preparation of a new wave of innovations.

What does this have to do with the current situation? We are currently in need of renewal in the market, that is obvious. Investments are falling, so are returns. We experienced the strong growth in December also because the number of cryptos exploded in front of the greatest visibility on all the possibilities offered by the blockchain. But now, there is a kind of questioning of the technology, of its limits and we may have to wait for a major change before we have the hoped-for turnaround.

This change could be on the crypto standard, which could change (more the BTC but another more stable, solid, or...). This can be achieved by a revolution in terms of technology or block validation. ORranother possibility. The infinities of solutions are present.

But is it just temporary? If we refer to history, yes. Whether it is with classical economics or with cryptos. It is a storm and the revolution will be coming soon. And if the term "revolution" is too strong, then a new direction and an important leader will be needed to bring a wind of renewal back to the market. And it is possible, it is ahead of us and all the current evolutions are proof that the market is already looking for its solution.

Good evening, everyone.

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