ISABEL RUBIO ARROYO | Tungsteno
While there was a time when the sky was the limit in the cryptocurrency market, in recent months it has experienced an unprecedented slump. While some are calling this a crypto-winter and believe there is no going back, one of the world's largest investment banks is planning to spend tens of millions of dollars on the sector. But has the cryptocurrency bubble burst for good or is there still a glimmer of hope?
From crypto winter to 'bloodbath'
2022 was a difficult year in the cryptocurrency sector. The price of Bitcoin fell by more than 60%, while the overall cryptocurrency market capitalisation lost a value of $1.63 trillion. The collapse of the FTX exchange, Sam Bankman-Fried's cryptocurrency empire, has caused headaches for several companies. This is because such companies tend to be closely intertwined: as well as investing in one another, they also buy tokens from each other and lend capital to each other.
There are signs that a significant number of retail investors have become discouraged to the point of abandoning cryptocurrencies altogether, Bitfinex analysts tell Reuters. "This is not the winter season anymore, this is a bloodbath, because the FTX crisis was like a domino that toppled so many companies," says Linda Obi, a crypto investor who works at blockchain firm Zenith Chain.
Cryptocurrency buying and selling platform FTX filed for bankruptcy at the end of 2022. Credit: Wall Street Journal
A long-term opportunity?
Despite the collapse of cryptocurrencies, big banks such as Goldman Sachs have seen an opportunity to buy or invest in companies in this sector. Mathew McDermott, head of digital assets at Goldman Sachs, told Reuters that the FTX implosion has increased the need for regulated and more reliable cryptocurrency players. "We see some really interesting opportunities, priced much more sensibly," he said.
The bank's chief executive, David Solomon, told CNBC that while he sees cryptocurrencies as "highly speculative," he sees a lot of potential in the underlying technology as its infrastructure becomes more formalised. What happened to FTX, according to Solomon, "is only going to accelerate the focus on making sure we have a prudent regulatory structure for all of these activities." Mark Bruce, chief executive of Britannia Financial Group, believes that "customers have lost trust in some of the younger businesses in the sector that purely do crypto, and are looking for more trusted counterparties."
Some banks, on the other hand, are more sceptical. HSBC CEO Noel Quinn told a banking conference in London a few weeks ago that he had no intention of expanding into cryptocurrency trading. And in early December, Morgan Stanley CEO James Gorman said: "I don't think it's a fad or going away, but I can't put an intrinsic value on it."
The collapse of the cryptocurrency sector may have a global impact. Credit: CBS News
The long-awaited end of crypto winter
As we wait to see if the collapse of FTX and the meltdown of the crypto world spurs more regulation, there are those who speak of a crypto winter or even a possible crypto extinction. For Peter Schiff, CEO and chief global strategist at Euro Pacific Capital, this is not a crypto winter because that implies that "spring is coming." "This is also not a crypto ice age, as even that came to an end after a couple of million years. This is crypto extinction," he warned on Twitter.
There is no doubt that 2022 has been a rough year for these assets, but it is still too early to say with certainty whether the situation will improve. Past experience indicates that the average crypto winter lasts about four years. While it is currently not possible to predict when this crypto winter will end—or if it will end at all—a four-year winter would mean that cryptocurrencies might not recover until 2026. In recent years, various retail investors, venture capital funds and even public companies have invested in these assets. While some experts are pushing the idea of crypto extinction, there are those who believe that this sector has probably become too important a part of mainstream financial markets not to recover.
· — —
Tungsteno is a journalism laboratory to scan the essence of innovation.