It seemed like there was nowhere to hide in the crypto market last week.

Forced selling and liquidity troubles have “resulted in one of the worst quarterly price performances of the crypto space,” Lucas Outumuro, head of research at IntoTheBlock, wrote on June 17 in his newsletter.

“Overall, this week concludes a historic crash for crypto. We have witnessed record-level activity in multiple metrics as mayhem ensues throughout the market,” Outumuro wrote. “While it may still be too early to call the bottom, there are some evident similarities with previous bear markets.”

Bitcoin, the largest cryptocurrency by market value, fell below $20,000 on Saturday for the first time since December 2020. Ether, the second-largest cryptocurrency, dropped below $1,000, a level not seen since January 2021. The overall cryptocurrency market cap is below $1 trillion, from an all-time high north of $3 trillion.

As they anxiously watch on-chain movement, investors are wondering what’s ahead. Industry players are nearly certain that many projects will disappear, while adding that this reveals issues with centralization and leverage issues, but to some of them, there’s a silver lining.

“This is healthy,” Corey Miller, growth lead at cryptocurrency exchange dYdX, told Fortune.

Short-term adjustments

The domino effect within the cryptocurrency market will likely continue, at least in the short term, industry players predict. More pain is ahead for investors and projects exposed to excessive leverage or other operational issues. It seems to all trace back to Terra.

Though macroeconomic factors, including higher than expected inflation numbers in the U.S., set the stage for headwinds to come, the Terra ecosystem collapse—with failed algorithmic stablecoin TerraUSD (UST) and its original cryptocurrency Luna (LUNC) becoming nearly worthless—was an undeniable big bang in the space.

At its height, UST and LUNC were worth $60 billion, and after they collapsed to about zero in May, the impact on connected institutions became apparent last week. One of the cryptocurrency market’s biggest lending platforms, Celsius Network, paused its withdrawals on June 19, sparking rumors of bankruptcy. Reports concerning the state of multibillion-dollar fund Three Arrows Capital followed soon after, fueling further fears of contagion and systemic risk. As days go on, more and more firms, companies, and platforms alike are coming forward with updates on their financial health or lack thereof.

From big players to everyday investors, the impact is being felt far and wide. Even major cryptocurrency-related companies, like Coinbase, Gemini, BlockFi and Crypto.com, recently announced layoffs and headcount reductions—several of them having just spent millions on Super Bowl ads as crypto’s market cap was near its peak.

“Things are really shaky right now and it’s going to take a while for things to stabilize. People are watching and waiting to see if something else will topple,” Michael Safai, managing partner at cryptocurrency trading firm Dexterity Capital, told Fortune. To be a “trusted ecosystem, investors have to feel confident that when they put money in, they’re able to get it out. This is definitely setting back a lot of that trust.”

Currently, we’re in a bit of a “hangover,” Jason Urban, co-head of Galaxy Digital Trading, told Fortune. In the near term, continued volatility is expected.

“I think for the next three to six weeks, people are going to be figuring out what exactly has happened, and who is well healed and who is not. That’s the first step,” Urban said. Subsequently, “there are going to be projects that don't make it, and there are going to be projects that become wildly successful,” he added.

What we are seeing now is “excessive risk being wiped out from the ecosystem,” Miller, growth lead at cryptocurrency exchange dYdX, told Fortune, which he says is a healthy development. “While it does reveal many interconnected links within crypto, these wipeouts support the idea that crypto as a whole remains resilient to existential risks.”

Looking ahead

Coming out of this crash, major players in crypto say changes are all but certain in the space. There might be a hesitancy towards certain projects, depending on their code and pitch, or with platforms offering extremely high yield by over-leveraging. Regulation may also soon follow, but many in the space remain bullish on future innovation.

Urban compared the current state of the crypto market to the bursting of the internet bubble in 2000. Looking ahead, he predicts that alongside the distress, innovation will come out of this time period. Many others echoed his remarks.

“In stocks and crypto, you will see companies that were sustained by cheap, easy money—but didn’t have valid business prospects—will disappear,” Mark Cuban, avid cryptocurrency investor, told Fortune. “Like [Warren] Buffett says, When the tide goes out, you get to see who is swimming naked.”

While this will be a “very bad” period for “poorly built or not very useful projects,” things will be “much less bad for valuable ones,” Sam Bankman-Fried, chief executive officer of cryptocurrency exchange FTX, also told Fortune. “I don't think we'll see sectors die out but we might see some rotate to more sophisticated versions.”

In the long term, Safai sees less excessive yield and leverage.

“There’s going to be a lot of shaking up to be done,” Safai said. “[T]his era of being able to get exceptional yield for nothing is over. This is when a lot of leverage is going to get pulled out of the system, and this will ultimately make the crypto ecosystem safer.”

This downturn has revealed the crypto-related projects and funds that were “utilizing more risk than what was prudent,” Miller said. “Similar to other downturns, many players become forced sellers and are subsequently washed out.”

In response to the carnage this time around, government regulators have already signaled interest in furthering the development of a regulatory framework for the cryptocurrency market. Those within the space have mixed feelings about government intervention, but it might be happening whether they like it or not.

“We believe that regulation is a positive development in our industry as it will force players to disclose more details on their activities so that clients can better assess the potential risks associated and how they vary across different companies,” Adam Reeds, co-founder and chief executive officer at cryptocurrency lending platform Ledn, told Fortune.

While recent events, like the collapse of UST and LUNC, has “posed a threat to crypto market sentiment and is a catalyst for regulation, it will ultimately not stop the growth of innovation in Web3,” Isla Perfito, chief executive officer of Sator, a blockchain-based entertainment platform, told Fortune.

Lessons learned

Though some industry veterans see similarities between this downturn and previous “crypto winters,” some lessons specific to this crash will carry extra weight going forward.

The “biggest thing” to come out of this downturn will be a “focus on fundamentals,” says Tom Dunleavy, Messari senior research analyst.

“In the past, … [t]he new and most interesting projects got the capital, and grew to unbelievably large sizes for what they were actually accomplishing (or could really accomplish),” Dunleavy told Fortune. “The focus going forward will be on strong protocols, strong teams, and strong use cases.”

He also predicts that this downturn will “essentially end” the “wars” between Ethereum (ETH) competitors. “There is going to be BTC [or Bitcoin] and ETH, and then a long tail of projects fighting for the remaining 20% to 30% of crypto market cap."

Major takeaways from this crash will also shape the future of the space, industry players say.

“Everyone is having to take a good hard look at their risk management right now, but exchanges seem to be pretty inoculated from this madness. With less capital at everyone’s fingertips, the question for traders will be how to more intelligently deploy capital and optimize activity in a world where leverage is limited,” Safai said.

This will be important because “a handful of trading firms make up a significant amount of market activity, and the market doesn’t want to be without them,” he said. “Shops that navigated other lengthy crypto downturns will lean on that experience and probably come out far stronger, to the benefit of the industry.”