Cryptocurrencies at crossroads after annus horribilis
SINGAPORE听–听To borrow from Britain’s Queen Elizabeth, 2022 is not a year on which the cryptocurrency world shall look back with undiluted pleasure.
Crashes, contagion, collapses came in such quick succession that investors were, towards the end of the year, asking serious existential questions.
础蹿迟别谤听all, the largest cryptocurrency, bitcoin聽BTC=BTSP, has not kept its head above water for more than a week at a time, and is down聽about three-quarters聽from last November’s $69,000 peak.
The market value of the 22,000-odd tokens and coins is now at less than a third of the peak $3 trillion in November 2021, and many of them are comatose,聽if not outright dead.
That’s been a brutal reality check for an industry that kicked 2022 off with dreams of widespread mainstream institutional adoption, of bitcoin supplanting even gold as the world’s inflation hedge,聽as well as聽endorsements from the likes of Tesla Inc chief Elon Musk and the wild celebration of billion-dollar non-fungible tokens.
Not only did听肠谤测辫迟辞肠耻谤谤别苍肠颈别蝉听get slammed by the Fed’s uber hawkishness, their slide also triggered the crash of a stablecoin called TerraUSD, that then wrought a ‘Lehman moment’ as funds and brokers such as Celsius and Voyager went bankrupt.
What some saw as the final nail in the crypto coffin was the collapse of Sam Bankman-Fried’s聽聽last month.
WHY IT MATTERS
Unlike in 2017, when bitcoin crashed just as spectacularly, there are聽far fewer聽diehard crypto buffs predicting a bounce this time.
Rather, 2022 has become the “I-told-you-so” case for regulators, who’ve聽largely聽maintained an arm’s聽length聽from the crypto world or even banned trading in聽cryptocurrencies.
The European Central Bank reckons bitcoin’s modest bounce this month is an “artificially induced last gasp before the road to irrelevance”.
Indeed, the one extenuating factor this year has been how mainstream finance has聽mostly聽escaped contagion. The excesses, the uncontrolled lending and fudging of billions of dollars have happened聽overwhelmingly聽within the crypto ecosystem.
At the same time, the idea that decentralized finance and private crypto coins can operate in the shadows of the traditional banking system, and thrive, now appears听诲别濒耻蝉颈辞苍补濒.
As retail and institutional investors lose trust in crypto operators, a host of policymaker voices and even crypto barons are joining U.S. SEC Chair Gary Gensler in calling for regulation.
WHAT DOES 2023 HOLD?
UBS strategist James Malcolm points to the increasing correlation between听肠谤测辫迟辞肠耻谤谤别苍肠颈别蝉听and micro-cap US stocks as testament to how bitcoin and other tokens could survive on the fringes, as a niche, diverse asset in investment portfolios.
“It鈥檚 wrong to say this thing is going to curl up and die completely because there are elements of it which can be useful in other areas, and there is probably a modest cryptocurrency market which will continue to thrive on the margin of financial markets,” he says.
Yet, the sort of regulation that investors need to feel safe dealing with crypto brokers and exchanges, be it transparency or capital adequacy, could take months, if not years聽to implement.
“Some asset managers are looking at this as a 10-15 year journey to digital assets becoming fully mainstream,” Morgan Stanley said in a note summarizing the bank’s discussions with the crypto industry.
Next year聽could meanwhile see traditional financial world use the crypto malaise to up its game: snap up platforms and assets in the blockchain world, issue tokenized bonds and stocks or maybe even roll out more central bank digital currencies.
As UBS’s Malcolm says, it might just go to show that crypto was meant to be聽尘辞谤别听“an evolutionary than a revolutionary development in financial markets.” – Reuters
