Coming off the back of a period of government stimulus packages and low interest rates, the crypto sector was valued at $3 trillion in November last year. By mid-June of this year, however, that number had shrunk to $920 billion, signifying a huge 60% drop. After Terra’s USD stablecoin lost its peg to the US dollar in May, its Luna coin was emptied of almost all its value as well. As to prices of the big cryptocurrencies, Bitcoin was down 70%, Ether 75%, and BNB 65% by June. Crypto exchange Gemini said, in the same month, it would be shedding 10% of its workforce due to the crypto winter that had set in. In a sector that is comparatively young, analysts have been discussing the question of when a recovery might be expected. By way of comparison, the crypto downturn of 2017 – sparked by tighter regulations – lasted more than 1000 days, after which Bitcoin touched a new high. In this article we’ll go through some of the most important visions analysts have of the future of crypto, especially as they relate to CFD crypto trading.
“The future of crypto, I’m sorry to say, looks regulated to me”, says Nela Richardson of ADP. Following the Terra collapse in May, regulators showed more concern about the significant losses faced by traders in the crypto market. The Financial Stability Board (FSB) – a regulatory body made up of the G20 nations – said in July it was in favour of “robust” rules to be put in place from October, due to the recent volatility in the market. In particular, the FSB wanted to stop cryptos from “imposing potentially large losses on investors and threatening market confidence”. In July, the European Union settled on a new set of rules for the market and Hoi Tak Leung of Ashurst LLP predicted the MAS (Monetary Authority of Singapore) “Will get tougher on crypto and crypto assets”.
Traders’ worries about inflation and recession, which were behind the crypto selloff in the first half of 2022, look set to persist. As a result, “There will be others that come forward into trouble – I don’t think it ends here”, suggests Marcus Sotirou of GlobalBlock. He was referring to the announcement of crypto lender Celsius in mid-June that customers would not be able to withdraw their funds because of “extreme market conditions”. Soon after this, similar announcements came out from Voyager, CoinFLEX and Babel Finance. The future of several companies, including Vauld, looked questionable in this climate, in Sotirou’s opinion. In July, Rose Kehoe of Kroll believed we were destined to see “the contagion effect of recent market events, including in Singapore”.
Although the onset of a crypto winter seemed inevitable by mid-2022, some analysts were not convinced it would be destructive in the long run. “This is necessary for any financial market to mature and evolve”, says Matteo Dante Perruccio of Wave Financial. According to Perruccio, traders may look forward to a crypto summer which could “be more sustained and healthier”. One piece of news he found encouraging in June was that Goldman Sachs was considering buying up Celsius’ assets, which implies “they believe the industry is going to come back”.
Jon Cunliffe, deputy governor of the Bank of England, was well aware in July that cryptos are “very vulnerable to sentiment and prone to collapse”, but he also noted blockchain technology could potentially improve the traditional financial system by lowering costs and increasing the speed and transparency of transactions. He cited smart contracts as an example of a promising crypto innovation. At the same time, the necessity to control risk in the market was paramount because “People don’t fly for long in unsafe aeroplanes”.
Digital National Currency
In roughly four years, the European Central Bank (ECB) is expected to present the continent with a digital euro. According to ECB president Christine Lagarde, this will be essentially different from the mass of present-day cryptocurrencies. Lagarde says her “Very humble assessment is that it (cryptocurrency) is worth nothing… there is no underlying asset to act as an anchor of safety.” By contrast, as with all digitized fiat currencies, the country’s central bank will be behind the digital euro, thus backing its value.
For readers involved in CFD crypto trading, a trend to be aware of, in the opinion of Marieke Flament of NEAR Foundation, is the potential shift to India as a big crypto center, despite the legal battles that have recently stormed around the status of crypto in that country. In the face of the continued enthusiasm of crypto diehards, though, Sam Bankman-Fried of FTX reminds us that “something that is basically an empty product… certainly has real crash potential”, which again points us to the distinction between cryptocurrency as a trading instrument, on the one hand, and the potential utility of blockchain technology in our financial system, on the other. Thus, it’s safe to assume that the same volatility which has characterized crypto from its origin may be here to stay for the foreseeable future as well.