It’s no secret that the crypto industry is currently going through a rough patch with its market cap losing US$2 trillion since November 2021.
But while it will take time, crypto’s recovery will tell a much more complete story. Here are three reasons why the crypto industry is not going away anytime soon and will survive this Crypto Winter.
- Crypto is increasingly useful
The cryptocurrency market is poised to bounce back because digital assets have clear, long-term benefits. Crypto companies are diligently working to provide more transparent and effective financial services that have real utility, such as affordable remittances, instant settlements, and more efficient cross-border payments. Crypto is beneficial from a verification perspective as well. Tremendous amounts of money are spent by traditional financial institutions on third-party auditors to ensure all claims are in the books. Since cryptocurrencies are built on secure and immutable blockchains, they facilitate more secure forms of payment as there is no central point of failure, and all transactions are visible on the blockchain.
Emerging markets, in particular, are taking the lead in the grassroots adoption of blockchain technology, as detailed by Chainalysis’ latest global crypto adoption index, mainly for remittances and as a hedge against weak currencies.
While there were serious doubts about the scalability of blockchains during previous bear markets, the recent progress made on layer-2, zero-knowledge transactions and the evolution of decentralized finance and its many use cases is proving that it’s only a matter of time until crypto becomes mainstream and is adopted globally. This adoption starts with financial use cases for the B2B sector and better peer-to-peer transactions and goes all the way to innovative interactions powered by NFT technology like Decentraland’s metaverse.
Crypto’s vision to solve the many problems of modern banking while building a more inclusive financial system is here to stay, and there are good reasons that the ultimate answer will combine a mix of traditional actors and new players.
- Institutional investors are digging in
Institutional investors have taken note of crypto’s potential, and they want more. With big names like BlackRock and Coinbase partnering to broaden access to crypto assets for their institutional investors, it is clear that this asset class has real influence and staying power. Global macro hedge fund firm Brevan Howard has raised over US$1 billion for its flagship crypto vehicle. Even JPMorgan has given its wealth management clients access to six crypto funds, which is especially notable given CEO Jamie Dimon’s reputation as a crypto skeptic and critic.
Recently, Charles Schwab, Citadel Securities and Fidelity Digital Assets announced the launch of crypto exchange EDX Markets, the latest indication of traditional financial giants marking their presence in the world of digital assets. Furthermore, rumors are circulating that Fidelity may soon allow its 34 million retail investors to buy Bitcoin through its brokerage.
There is nothing wrong about being wrong, and these moves will help pave the way for more actors to realize that despite being in its infancy, cryptocurrency still presents an innovative way for consumers to diversify their investments. As more types of traditional financial products — such as options, derivatives and non-deliverable forward contracts — are being applied to cryptocurrencies, the capacity of the market for digital assets will continue to grow. These same products will first be used by professionals with a clear added value of removing counterparty risks while ensuring fluid settlement processes and a clear valuation framework.
- Crypto is being regulated, not banned, by authorities that matter
Serious actors in the ecosystem are willing to respect compliance and regulation, in part because it will unlock the potential for more mainstream adoption and also help keep bad actors out of the space.
The European Union has recently drafted and approved Markets in Crypto Assets (MiCA) legislation, a critical new set of cryptocurrency regulations set to take effect in 2024. This landmark legislation, combined with the expansion of existing anti-money laundering laws, is positioning the E.U. as the most robust and thoughtful crypto regulator in the world.
In the United States, the regulatory framework is lagging in development, but the introduction of the bipartisan Responsible Financial Innovation Act sponsored by Senators Cynthia Lummis and Kirsten Gillibrand is a step in a promising direction. The Securities and Exchange Commission and the Commodity Futures Trading Commission are still competing for jurisdiction to decide whether crypto assets should be defined as securities or commodities. But at the end of these disputes, there will be clear regulations to guide companies built on blockchains, and investors looking to buy more digital assets.
The U.K. is planning to approve stablecoin regulation for payment purposes in the near future, which would add some effective clarity for U.K.-based crypto companies and consumers. Singapore is another regional hub that established itself early as a safe place for digital asset innovation, though the country is anticipated to introduce harsher regulatory measures for retail investors in the future.
Due to the borderless nature of digital assets, countries are choosing not to ban crypto and instead implement regulatory guardrails to protect investors, while ensuring a fertile ground for innovation.
It may take some time, but sensible regulation will benefit market participants greatly by targeting cryptocurrency-based crime, instilling more stability in the market, and addressing the technical complexities around securing and transacting digital assets.
Cryptocurrency — and the blockchain technology underpinning the industry — is going through its own refining moment. Events like the Terra UST/Luna collapse shook the ecosystem. It highlighted the need for regulations and the importance to build products that bring real value to the community. With institutions asserting the role of digital assets in the broader financial ecosystem, regulators laying the first stones for safer and wider use of crypto and blockchain technology continuing to scale, there is little doubt that the world of crypto will recover stronger than ever after this bear market ends.