Since the start of May cryptocurrency prices including Ethereum’s ETH, home to some of the most popular NFT projects and platforms, have dropped significantly. ETH itself more than halved in value versus most ‘fiat’ (e.g. the US dollar or Euro).
While macroeconomic factors play a major role here, there had long been a feeling that the market was overheated and needed correction. The bull cycle ended spectacularly with the collapse of Terra-Luna with an estimated $42 billion evaporating. Enter ‘bear market’.
Three stages of a bear market
People who entered crypto (and its recent moniker ‘web3’) in the last 1-2 years are likely to have a conception of bear markets as moments when hype simply dies down, but it cuts much deeper than that and is incomparable to hype as we know it in cultural domains. A Twitter thread by crypto veteran Jason Yanowitz offers a confrontational explanation (hat tip Dan Fowler for putting it on my radar):
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.
Since the Terra-Luna collapse, we’ve entered stage 2:
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!"
Eventually this takes us to stage 3: winter.
If you are building in web3, that prospect is scary. Really scary. Not because you don’t believe in what you’re building, but because you don’t know how it’s going to pay rent. If you’re lucky to have a solid revenue model or have raised funds, it may still be hard to attract talent or general interest since people might have moved on to the next shiny thing (e.g. ‘metaverse’).
What it means for music
The sad reality is: music goes where money goes. Artists need to make hard choices about how they’ll pay the bills so they can focus on their art full-time. With gigs gone at the start of the pandemic, some turned to livestreaming and creator economy models like Patreon or OnlyFans, these trends eventually made way for ‘web3’ with artists learning how to market their art as NFTs. They identified a new market for their art that sits above ‘feels like free’ streaming pricing, above paid downloads from e.g. Bandcamp, and closer to what one might get paid for a gig, but in this case all the value’s transferred by 1 person or small number of people rather than a whole audience.
But the NFT market is stalling. Data from NFT market tracker NFTGo shows that trading volumes among so-called ‘blue chip NFTs’ have dropped. Blue chips are some of the more popular and well-known NFT collections in the market and thus provide a great overview for general market sentiment. In USD terms, the volume has halved.
A project like Songcamp Chaos, with full support from the space and an amazing creative concept, would have sold out easily just months ago, but has currently only sold about half of its 5,000 pack collection. Venice Music has sold only 188 of its genesis membership pass to date, with sales concentrating around its launch date. This would have looked differently too, not long ago. And there’s of course the project I’m personally involved in: COLORS’ Community DAO. It took us a good week to sell 25% of our total Founding Pass supply, after which the DAO passed a proposal to switch up our strategies a bit.
In short: it’s hard to sell NFTs at the moment and the amount of money NFT sales may generate in dollar terms has decreased. The result: we may see musicians and other artists spend less time building, since they’ll need to find other ways to put food on the table.
What it doesn’t mean for music
Web3 isn’t ‘dead’. Everything that was there is still there. Web3 is the infrastructure, the technology, the mechanisms - not the hype. Projects with weak theses will disappear and their proponents too (think: cash grabs). Their DAOs will fizzle out.
In the case of the COLORSxCOMMUNITY: we started with the idea of how COLORS can weave its community into itself (and vice versa) long-term. That community existed before we started integrating web3 tooling into it. The reason for integrating web3-tooling is equity: not necessarily in financial terms, but as a core value. We wanted the community to be equitable for its participants and although web3 has a steep learning curve, it is still the easiest way to achieve truly equitable outcomes as communities.
Organisations and individuals that operate along these lines will constantly find reasons to experiment, to build, et cetera. To compare: take all revenue away from a musician. Are they going to stop making music? No. Are they going to take a month off to tour and perform a whole lot of free gigs that they previously got paid for? Unlikely.
What will come first is a vibe shift. True doom. Revenue, in crypto, that musicians were becoming dependent on will go towards 0. There will be new attempts at price discovery: suddenly 0.08 ETH (~$95 at time of writing) feels different compared to months ago when it was worth double in USD. Less disposable ETH means less “artists supporting artists”, one of the most awesome things about the budding web3. Things will start to feel rough. It will feel like nobody cares about your music or art all of a sudden. This will make people turn away from communities they thought had their backs.
But the support is not gone. Communities will have to support each other in other ways. DAOs will need to find revenue flows that don’t completely depend on web3 market sentiments; things beyond NFTs and tokens. Web3 revenue being down doesn’t invalidate the idea of a DAO and its tooling - as a matter of fact it will prove it.
Build market
Some people refer to the ‘bear market’ as the build market. As the market heated up and the music business got onboarded to web3, we started seeing all kinds of problems emerge. These range from the technical difficulties of onboarding people to web3, to environmental concerns, to the emergence of communities with huge economic moats (pay-to-play), to speculators pump-and-dumping on legit projects. All of these problem areas and many more now provide domains for builders to come in and create solutions in a focused way.
There are a lot of DAOs and web3 orgs and platforms who have wasted a lot of time and money over the past year or two. If you have a liquid token for your community, it means people can cash out their membership when they want. This drives organisations, especially their elected leadership, to prioritize projects that keep token prices high. Unfortunately, these token prices are more affected by hype, speculation and vibes than by truly substantial contributions (e.g. ‘public goods’). But in a bear market, speculation dies down. There is less reason to build hype and since budgets are a lot tighter: way more reason to deliver with focus.
Ideas are no longer enough. It’s time to execute with focus, without relent, and with a commitment to tackle hard decisions fast.