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Psychology is key to identifying exactly where we are in a crypto market cycle, which is not to dismiss macro events, technical analysis and whatever inside hints you can get your hands on. But, with crypto especially, it’s instructive to be tuned into the overall motivating sentiment, as reflected among trolls, traders and influential figures on social media.

Crypto markets are so volatile, and coins experience sharp downward corrections so often, that there isn’t usually too emotional a reaction to dips in prices. Around bitcoin, in particular, the HODL culture is strong, and rightly so. It’s not true of altcoins, but in the case of BTC, years-long dollar-cost averaging, along with the ability to look away from the charts and do something else, would up to now have more than seen you through and will very likely continue to do so in the future.

Just occasionally though, total fear takes over, and where usually the crypto chatter-bubble echoes with exhortations to buy the dip, a more primal and jittery emotion sweeps through. The current situation is getting close to that kind of panic, as thoughts turn to recessions, bitcoin makes a mess, and short-term confidence takes repeated blows to the head.

At times like these, insecurities come to the fore, but, counter-intuitively, this can be very useful in order to gauge the true state of things. Cracks that had previously been papered over with profits start to be revealed, and observers can get a more accurate impression of the strengths and weaknesses of particular assets.

A Test for NFTs

In this current cycle, NFTs, in particular, are under close scrutiny, as they are such a new market and have come to prominence on waves of hype, and some attention-grabbing gains, over only the past year or so. What’s more, they have been repeatedly written off by naysayers, and are now being tested by the broader conditions.

With Bitcoin, Ethereum and altcoins, we have been through all this before. Few people expect an exact repeat of the post-2017 crash and extended bear market, but that period at least gives us an indication of how these assets can behave.

NFTs, though, are fresh territory with some new participants, and you can sense trepidation in the air. What this also means is that frank exchanges are taking place about what NFTs actually are, why people have invested so much in them, and what the case is for them to survive.

Remarkably, even within the NFT community itself, not everyone appears to have fully thought through what it is they are buying. This is perhaps due, in some cases, to being focused almost entirely on quick profits. That’s fine for a while, if you’re trading, you’re trading, but it also shows the necessity of a shakeout and reset, as such events streamline the space and provide an upfront, no-nonsense education in what an asset is, and where its value lies.

Identifying Problems

There is a certain amount of doom-laden thinking being expressed, emphasizing some particular concerns. One criticism is that the NFT markets have become overwhelmed with low-effort PFP (profile picture) collections, all derivatives of one another, with no particular direction, and operating as nothing more than cynical cash-grabs.

Relatedly, there is unease at NFTs being bought purely to flip for profit, creating a meaningless game of hot potato in which no-one wants to be the last person holding. This is accompanied by laments that NFTs are not what they were in the good old days (back in the mists of time, as in, last year) when, the legend goes, NFTs were all about community and joy, rather than returns.

A defining characteristic of those wholesome days, by the way, are the gains being pulled in while the NFT game was set to easy mode. It’s not uncommon to see people regretting that they sold assets when they had merely banked a 10x profit, rather than holding out for the full Lambo.

If you actually believe that no-one cared about profit, or that the community was not bolstered and amped-up immensely by the liquidity flowing into the space, then I’ve got a bridge to sell you, or a JPEG of a bridge, anyway.

That all said, the concerns are real. The NFT space is awash with projects that are aiming to cash in quickly while building nothing likely to stick around, and they can do so because of the hot-potato traders also aiming to cash in quickly. Fair enough, if that’s the way things are then take advantage while you can, but it isn’t a sustainable framework.

Finding long-term value

Overall, though, the air of gloom should be tempered by the knowledge that the parts of the NFT space that will survive are of genuine value. There is nothing intrinsically wrong with JPEG flipping, in fact, it’s effective at generating excitement and driving momentum, but look beneath the trades, and there are places where you’ll find real creativity, both artistic and technological, and some substantial, long-term building work taking place.

Such virtues are not pooled evenly, but correcting discrepancies is what these stress-test moments are all about, and when we come out the other side, it will be with clearer vision and free of clutter. When the markets are emotional but a million miles from euphoria, is when the true value is revealed.