When Bitcoin plummeted from around $30,000 to below $20,000 last year, Three Arrows Capital co-founder Su Zhu described the tailwind as a “nail in the coffin” for hedge funds.
Fast forward to today, and while the largest cryptocurrency has just returned from $20,000 to $30,000 in the past month, the industry is in the shadow of the last time the token crossed that milestone. That’s because several more coffins have been slammed shut in the domino-like wave of bankruptcies that followed the collapse of Three Arrows: Voyager Digital, Celsius, FTX, Blockfi, Genesis Global, and others formerly. A start-up company that was flying high in the sky.
While the mood has improved compared to last year’s post-apocalyptic atmosphere, it’s clear that Bitcoin’s promising rebound alone won’t be enough to repair all the damage from last year’s scandal-filled recession. is.
Oliver Lynch, CEO of trading platform Bittrex Global, said on the sidelines of a crypto conference, “Sentiment in the last few weeks has pretended the last 10 months weren’t there. It doesn’t seem to mean you can.” in Paris. “But perhaps this shows that we can draw a line under these scandals and return to evaluating and evaluating cryptocurrencies without all the noise from rumors and cheating. I definitely have that feeling.”
The alleged misconduct has sparked a flurry of regulatory scrutiny and high-profile prosecutions in the United States.
Most notably, FTX’s Sam Bankman-Fried is awaiting trial on fraud charges. Terra blockchain co-founder Do Kwon faces prosecution for his role in the collapse of the project. Binance and its CEO Changpeng “CZ Zhao have been sued by the Commodity Futures Trading Commission for various alleged violations. Coinbase Global Inc. has received notice that the Securities and Exchange Commission intends to sue the company. Binance and Coinbase deny wrongdoing Bankman-Fried has pleaded not guilty.
Then there are the recent failures of crypto-friendly banks Silvergate Capital Corporation, Signature Bank, and Silicon Valley Bank. Often cited as a bullish catalyst for Bitcoin, as they revived its origin story as a replacement for untrustworthy banks, the downfall of these lenders severed a vital link to the US financial system and the crypto industry. helped create a once-promising future for…as uncertain as ever.
Many retail investors hurt by last year’s plunge in prices appear to be licking the wounds rather than taking new risks as the amount involved in decentralized financial projects remains constrained. According to DeFiLlama’s website, the total amount of coins locked in DeFi projects is around $50 billion, up more than 25% since early January, and his $180 billion reached in December 2021. is just a fraction of the peak of
At the same time, the industry has lost thousands of jobs and jobs have not returned. In a sign that the supply of talent still outstrips demand, blockchain project Concordium has received more than 350 of his applications for several recent vacancies, said co-founder and chairman Lars Seier Christensen. says Mr. “The space has matured a bit and we have noticed that the money tree that we got a few years ago has died down a bit,” he said.
Investment from venture capital firms has slowed dramatically. According to PitchBook, global private funding to cryptocurrency startups fell to $2.4 billion in the first quarter, down 80% from a record $12.3 billion in the same period last year.
“Much of the industry is still in wait-and-see mode,” said Matteo Dante Peruccio, international president of virtual asset management firm Wave Digital Assets. “There is a flight to quality, and the beneficiaries are the companies that were not hit by the crypto winter.”
Bitcoin’s eye-popping 83% rise this year is no match for new coins. Ether, which significantly outperformed Bitcoin in 2020-21, is up 71% this year. The Bloomberg Galaxy DeFi Index, which tracks the largest decentralized financial protocol, has rejoined only about a tenth of his 2,000-point drop last year.
“We could see a case of seller exhaustion combined with a new bullish story after the banking crisis,” said Clara Medalley, research director at market data provider Kaiko.
Despite the gloom and uncertainty, the evolutionary progress of the industry continues. Ethereum has completed what appears to be a successful network upgrade this week. The so-called Shanghai Update, which allows investors to withdraw their locked-up Ethercoins in exchange for rewards as part of a “proof of stake” system to secure the network, has been outdone by dozens even after the SEC. It could lure billions of dollars to Ether. Chairman Gary Gensler indicated that he believes tokens should be regulated as securities. This week, the price of Ether took him above $2,000 for the first time in six months. “I don’t think there’s the hype and hype that he saw at $30,000 or $40,000, but there’s still quiet progress behind the scenes,” said Fintech and crypto companies.
The macro image is also changing and could be headed for the better. A year ago, the Federal Reserve (Fed) and other central banks had just launched a series of rate hikes that reversed years of easy monetary policy. With the end of that tightening cycle nearing, conditions may once again be ripe for a crypto boost.
One of the big questions is how eager traditional financial institutions will be to move forward, and whether they will be willing to fill the role that failed cryptocurrency startups like FTX once did. There are several possible signs. For example, Nasdaq Inc. expects digital asset custody services to be launched by the end of the second quarter.
According to Citigroup research, over the long term, as much as $5 trillion could transition to new forms of money, including central bank digital currencies and stablecoins, by 2030. According to the report, another $5 trillion worth of traditional financial assets could be tokenized to drive mass adoption of blockchain technology.
Still, for Thorbakken Capital Advisors chief executive Michael Purves, given that cryptocurrencies are a moving target for the role they should play in portfolios, this is the time to “show me” for institutional investors. threshold will be higher. Like gold in the internet age, once touted as a hedge against inflation, it crashed during the worst consumer price spike since the 1980s.
“After bitcoin topped $20,000 in 2020 and played a key role in its subsequent rise to $69,000, institutions started taking bitcoin seriously,” he wrote in a recent note to clients. I am writing to “But this time, a long history of not offering portfolio diversification will weigh heavily on institutional investors.”
