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Eran Fishov

The Resurgence of the Cryptocurrency Winter

The Resurgence of the Cryptocurrency industry.
Source: AI-generated image via Midjourney AI generation tool
Anticipation for a new day for cryptocurrency industry. Source: AI-generated image via Midjourney's Generative AI tool

As the sun sets on a new day, casting its golden hues across the sky, filled with air of anticipation for a new day to emerge, brimming with possibilities and a promise for a better tomorrow.

Albeit the cold and devastating winter that the cryptocurrency industry has gone through the past year of 2022, some rustle warm breeze is breaking through, indicating the awakening of the surrounding nature in anticipation for the upcoming new spring season for crypto industry. The long-awaited resurgence of the cryptocurrency market is poised to regain its value and assert its position as a major player in the financial world.

The awakening from the winter sleep. Source: AI-generated image via Midjourney’s Generative AI tool

Furthermore, the current market condition resembles the awakening of the bear, as the winter thaw sets in, metaphorically. The bear is slowly emerging from its hibernation, stretching its powerful legs and taking in the sights and sounds of the awakening world. Similarly, it is imperative for the industry leaders and the regulators to unite and take immediate steps to revitalize the crypto industry.

Looking back on 2022, the world faced some tremendous economic downturns, which have created unfavorable conditions for the cryptocurrency businesses to thrive; 

The macroeconomic factors

Overall, the macroeconomic market conditions in 2022 have been rough, with an overwhelming high inflation rate causing the Federal Reserve to raise the interest rate paid on reserve balances to 4.4 percent, marking the highest rate in 15-years period, which made it super challenging both for individuals and companies and raised concerns about a global economic recession. 

The sheer decline in the shares of the largest tech companies at the beginning of 2022 has set the tone for the S&P 500 index drop, reaching the biggest annual percentage drop since 2008 at a total reduction of $8 billion. And as the entire financial market began to plummet, the Bitcoin’s value, along with the entire cryptocurrency market, has plummeted too.

The crypto market volatility

The high volatility of the cryptocurrency prices is often perceived as the “catch-22” syndrome of the crypto industry in regards to market performance and valuation. On the one hand, it may benefit its investors with favorable surges when the market is bullish. However, “when it rains, it pours”, in a sense when the financial markets are unstable and evident in drastic shifts in market demands, coupled with pessimistic sentiments from the investors, the high volatility overthrows the entire cryptocurrency market to a full-on meltdown.

Notorious financial crimes leading to negative publicity

The year 2022 will be remembered as the year of the notorious fraud scandals in the history of the financial world and in the cryptocurrency industry in particular, starting with the collapse of Luna and TerraUSD cryptocurrencies in May, leading to the fall down of the hyper-volatile Singapore-based crypto hedge fund Three Arrows Capital (3AC), evaporating a staggering $42 billion in investor value. 

These events served as a portent of the forthcoming catastrophe and the first ripple in the pond presaged the financial tsunami to come;

In July, major crypto lender firms, such as Celsius Network and Voyager took a nosedive by filing Chapter 11 and going bankrupt, wiping out $3 billion and $1.4 billion, respectively. 

The despicable FTX implosion in November marked the culmination of the crypto crash. Beyond the disturbing $32 billion in valuation that vanished, the easiness of how this scam was well-organized and facilitated by the crypto wunderkind Sam Bankman-Fried and his partners-in-crime was the perfect storm to ignite the worldwide public propaganda against the crypto market and served as a catalyst for the crash of the entire cryptocurrency industry.

Can the crypto industry resurge after such a catastrophic year?

To put things in perspective, in the wake of the FTX crypto exchange’s crash, while the media continues to make blaring noise on an apocalyptic crypto crash, it’s critical to acknowledge that the FTX fallout is first and foremost a peculiar fintech fraud that occurred in a badly-managed cryptocurrency exchange company.

“Learn from yesterday, live for today, hope for tomorrow.”
– Albert Einstein

Retrospectively, in the aftermath of some of the world’s largest tragedies such as the sinking of the “unsinkable” RMS Titanic, the incident became a true “single lucid moment” for everyone, which paved the way to settle rigid regulations and policies dictated by the countries and the relevant national and international agencies, ensuring that this outrageous one-time incident is indeed the last one to occur.

RMS Titanic hits an iceberg, illustration.
Source: AI-generated image via Midjourney AI generaton tool

Following the RMS Titanic disaster, new rules and policies were defined such as ensuring a sufficient number of lifeboats on board, maintaining radio watch bandwidth for distress signals and establishing The International Ice Patrol to monitor icebergs in shipping lanes.

In a retrospective, these measures facilitated the overcoming of the Titanic incident to bring the marine world to prosperity, with 60 worldwide cruise companies across 300 cruise lines serving 30 million ocean cruise passengers each year, and generating over $37 million a year in the US alone

Similarly, looking at the FTX crash and the devastating downfall of some of the largest crypto firms during 2022, regulators must seize the moment and act immediately to enforce policy implications both on the national and the international levels and securely escort the $1-trillion-valued cryptocurrency market to a safe harbor. 

Such policies must ensure protections with the sufficient and right proportion of checks and balances to be met and with solid proof of reserves and liabilities. These policies will facilitate standardized regulations on centralized crypto exchanges and stablecoinson to ensure the long-term viability, credibility and stability of cryptocurrency industry as well as its supportive backbone infrastructure of blockchain and web3 in the foreseeable future.

2023 – the year of crypto regulation manifestation 

Many leaders across the globe have been advocating the establishment of a standardized crypto framework that would set the stage for numerous other manifestations that will transpire in the imminent future.

Such manifestation is shaping up in the UK, as the regulation matter has been brought up by Minister Andre Griffiths, Economic Secretary to the Treasury during the Treasury Committee hearing last month:

“given the events in FTX and others that we saw in 2022, part of creating that future is to get the right regulation—not to have no regulation or to bake it in fully, as if this is already an established market and a fact, but to get that balance right.”

Similarly, other countries have made themselves more apt at the race to regulate crypto.

India announced earlier this month to be working on a paper to define the monetary policies on crypto assets.
https://www.coindesk.com/consensus-magazine/2023/01/24/india-g20-global-crypto-policy/

Australia announced at the beginning of month a multi-stage approach to tackling cryptocurrency regulation with a focus on strengthening enforcement, boosting consumer protection, and establishing a framework for reform.
https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/making-crypto-safer-consumers

Meanwhile, on the other side of the ocean, the crypto industry is under attack by the US government as the latter is exploiting the banking sector to organize a sophisticated, widespread crackdown against the crypto industry, by promoting a virtual propoganda of the Operation Choke Point 2.0 across every US financial regulator to deny crypto firms access to banking services.

Operation Choke Point was initially launched by Obama’s Department of Justice in 2013 to intercept certain merchants from accessing the banking system.

Most recently, on January 3rd 2023 the Office of the Comptroller of the Currency (OCC), together with the Federal Reserve and the Federal Deposit Insurance Corporation, issued the following milestone joint statement:

“…the agencies believe that issuing or holding as principal crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network, or similar system is highly likely to be inconsistent with safe and sound banking practices.”

The act by the Biden administration appears to be an execution of a well-coordinated plan that spans multiple agencies to discourage banks from dealing with crypto firms. 

Furthermore, as it applies to both traditional banks who serve crypto clients and crypto-first firms aiming to get bank charter, the overlaying message is pretty alarming as it could easily turn into staking bans or classifying thousands of cryptocurrencies as securities and would put crypto companies deprived from banking services in the United States.

Nic Carter, Castle Island general partner shared his concerns of the matter in the following blog post: https://www.piratewires.com/p/crypto-choke-point

Is there a light at the end of the tunnel?

The light at the end of the crypto tunnel
Source: AI-generated image via Midjourney AI generation tool

Where would the crypto industry go from here? 

Despite the obvious impact of the above on the crypto market and as its impending future remains in flux, cryptocurrency is a vital financial asset that is shaping the fintech world and it remains as a fundamental element in shaping the future of finance.

To conclude, although the stakes are high, as there is much riding on the outcome of regulating the crypto framework. yet, it is too early if not fully inconcievable to even imagine a possible final sunset of a $1 trillion valued market that is beleived to revolutionize the fintech world and that is anticipated to bring to life the future of finance vision. 

About the Author
Eran Fishov is a seasoned startup executive in the Israeli hi-tech space and an enthusiastic explorer of innovative technologies and fintech. Eran focuses on the power of technology to bring disruptive innovation to the fintech world, uncovering common topics in the area of crypto, NFT, blockchain, metaverse, web3 and more.
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