Pay-to-play was the first model involving gamers having to pay to play games without any earning opportunity. The second model involves free-to-play (self-explanatory), whilst the third and latest model is the play-to-earn (P2E) ecosystem. 

The play-to-earn (P2E), or sometimes called play-to-pay, business model (a recent innovation in the gaming industry) offers gamers ownership over in-game assets and thus allows them to increase their value by actively playing the game. It provides users with the opportunity to not only add value, but exchange and/ or sell the assets they have earnt/played for to other gamers. Players are creating value for other players and the developers by participating in the in-game economy and, in turn, they are rewarded with in-game assets. These assets may be anything - NFTs, cryptocurrencies or in-game resources that are tokenised on a blockchain. Most P2E games have native tokens for in-game purchases and trading between players and they derive value through the use of their tokens. Axie Infinity, a leading example of P2E games, counts on players making a hefty upfront investment in Axies (the game-specific NFTs).The in-game assets earned from playing can then be traded at an appreciated price with other gamers. 

Whether or not you earn from playing, or the amount that you earn, depends on the length of time you invest in the game, the game's popularity, and the demand for the in-game assets or tokens from other gamers.

How the play-to-earn model stands out

• asset ownership - play-to-earn gaming platforms, unlike the traditional game, use NFTs which are owned by the users. Gamers can mint and customise NFTs. They can also be transferred to NFT marketplaces for sale or converted to cryptocurrencies or fiat currency. NFTs, used in navigating through the game, can come in the form of avatars, land, pets, etc.

• decentralisation - play-to-earn ecosystems typically operate under a decentralised governance framework, allowing their users to participate in crucial decision-making processes.

• earning opportunities - aside from offering players interesting gameplay, play-to-earn gaming platforms make earning opportunities available for players. Gamers can collect in-game assets whilst they carry out different tasks, depending on the gameplay.

Is the business model sustainable?

The sustainability of the business model depends on many factors. Indeed, problems linked with this concept exist since the appeal of earning money could dilute the gaming experience. One of the identified risks is a game's ability to continue growing the economy it intends to build. According to Adrian Kolody, a DeFi startup founder, the only way a play-to-earn model can be sustainable is by making sure the game's users are of high quality. This may not be true for all cases. For instance, Axie Infinity was recently reported to be going through a difficult time - Axie is tied to crypto markets and players get Smooth Love Potion (SLP) tokens for each game they win and, in larger tournaments, can earn another cryptocurrency, Axie Infinity Shards (AXS). The company, as of October 2021, had raised more than $160 million from investors and Sky Mavis reported that Axie Infinity crossed 2 million daily users that same month. However, in March 2022, Axie was said to be in deep crisis and had lost about 40% of its daily users; AXS price had dropped to $56 from $165 whilst SLP (which had earlier traded as high as 40¢), was at 1.8¢. 

Sources: Coinbase, Sky Mavis

Unsurprisingly with the crash, players lost their money. Although Axie announced its plan to reimburse the victims and repair its infrastructure, it is yet to do so. Microsoft, which paid over $68billion for Activision Blizzard, was looking to start offering play-to-earn assets as a way in which to recoup some of the capital it had spent acquiring the business. Activision Blizzard had polled gamers to assess interest in NFTs, despite the Game Developers Conference’s State of the Game Industry Report declaring that the majority of the 2700 game developers surveyed having said they had no interest in NFTs. So, the jury is very much out as to whether Microsoft, or indeed other on-line game developers, will expand their play2play business models.

Although the play-to-earn model may seem too good to be true, it actually is. Whilst some players have only eked out small winnings or have never won, many gamers have already made significant money. However, as to be expected, some unscrupulous providers are in the business for personal gains and to postpone payoffs by preventing you from reaching your payout target. It is advisable to be prudent and do your research so as not end up wasting your time, or at worst, losing your money.

This week, Bitcoin fell below $21,000 for the first time in over 12 months. The cryptocurrency is down more than 68% from its all-time high, close to $68,990, back in November 2021. Likewise, Ethereum is down 63% from the historic highs set in the same month. In both cases, over 50% of the decline occurred this year. Experts have warned that things could continue to deteriorate, although the current situation doesn’t yet match the severity of the 2018 crash (in which Bitcoin lost 80% of its value). Nonetheless, investors are at a crossroads. Many, following the old investment adage ‘buy the dip’, are looking for a piece of the volatile crypto market in the hope that this is a temporary downturn rather than a long-term bear market. Furthermore, some investors, in a bid to be careful, have asked the critical question: “Should I buy the dip?"

Is it time to buy the dip?

So, back in November 2021, Bitcoin was trading at around $69,000 but, suddenly, it slipped to around $55,000. It was called 'dip' and, unsurprisingly, many investors jumped to 'buy the dip'. A month or so later and Bitcoin fell to around $45,000. Here was another chance to buy the dip, and many investors took that chance. Again it dipped, this time to around $33,000, and once again the hopefuls bought the dip. Currently, Bitcoin is trading at around $23,000. The principle of buying the dip is based on an assumption that these price drops are temporary aberrations, correcting themselves over time. The buyers hope to exploit these dips by buying at a relative discount and reaping the rewards when prices rise again. It has happened many times before and it can happen again. However, cryptocurrency markets are notoriously volatile; hence buying crypto at any price - dip or no dip - is risky. Although prices could return to previous levels, on the other hand, they could leave your investment underwater by falling even further. 

Total market cap: from over $3trillion to $1trillion

Source: Coingecko

If the past is prologue, then the current crypto crash could bounce back as it did last year when prices fell to similar levels before returning to pre-dip levels. But of course, there is a possibility that they might not. Worthy of note is, that every kind of investment has past performance which is no guarantee of future results. Whether or not to buy the dip cannot be answered in one word. You may have to ask yourself questions before taking either step. What amount of money can I afford to lose, since any investment has its inherent risk? How long am I prepared to wait if the price does not rebound in the short term? Do I set a stop loss - i.e. if the price falls by another 25%, do I stay invested or leave an order with an exchange to sell?

Why is crypto crashing?

The specific reason for the current dip is yet to be agreed on. There are, however, speculations. The decline has been attributed to comments made by Bill Gates on Reddit, whereby he shared his thoughts and displeasure about how the value of crypto is based on what one person decides. Tesla also made a U-turn on accepting Bitcoin as payment for its products. China, in the latest wave of restrictions on cryptocurrencies, ordered Bitcoin mining in its Sichuan province to shut down completely and told banks to stop supporting crypto transactions. All these are thought to have had an impact on the global crypto market. The crypto crash has also been linked to a massive sell-off by investors amid heightened inflation fears, the crash of Terra stablecoin and the pausing of withdrawals by the crypto-lending service, Celsius. Investors are also staying away from riskier assets, consequently being reflected in the stock markets as well. 

Crypto price correlation with tech stocks

One of the limitations of Bitcoin is its dependence on economic policies that so often cause ups and downs in equities. In the current market state of rising interest rates and increased inflation, most assets have been hit hard, Bitcoin included. Amid this downturn, questions have been raised as to whether Bitcoin is correlated or uncorrelated to stocks. According to CoinDesk, for most of 2021 Bitcoin remained within a range of -0.2 to 0.2 when compared to the S&P 500, gold, the U.S. dollar and bonds. This value indicates that Bitcoin is were largely uncorrelated to other assets. Blockchain Center, which monitors cryptocurrency price movements, has conducted further research which proves that Bitcoin was uncorrelated to the S&P 500 even further back, for a stretch of nearly two years from 2019 to 2021. However, times have changed and market conditions are becoming less focused on growth. Both the CoinDesk report and data from Blockchain Center reveal that Bitcoin initially became correlated to the S&P 500 in the last quarter of 2021. The 90-day correlation between S&P 500, gold, the U.S. dollar and bonds increased with Bitcoin from 0.2 (no significant correlation) to about 0.6 (fairly strong correlation).

What to do? 

Experts suggest refraining from buying large amounts of cryptocurrency at any one time when investing. A price drop after investing large amounts could be catastrophic. Whether the price goes up or down, it is advised to buy a small amount every month (pound cost averaging) as opposed to investing 100% at once.