Cryptocurrencies: a sector expected to bounce back after an apocalyptic year

2022 will remain a special year for the crypto-asset ecosystem. With a trade volume of more than 14,000 billion dollars (compared to 1,800 billion in 2020), all records will be set after 2021 with 30 billion invested by venture capital funds worldwide (four times more than in 2018) , cryptocurrencies were on the rise.

Therefore, hopes were high for industry watchers at the start of 2022. But nothing went as planned. Rather than structuring last year, it will now be a stress test of expected magnitude for this ecosystem.

Since the spring of 2022, clouds have gathered in the sky of cryptocurrencies. And for good reason, if the price of these digital assets depended on the upheavals on Wall Street until 2020, the adoption of bitcoin and more crypto-assets by financial institutions around the world has changed the situation. As technology stocks hit hard on the Nasdaq, cryptocurrencies began to follow the dynamics of stock assets on the New York Stock Exchange and therefore fell.

At the start of the war in Ukraine, there was an illusion that Bitcoin was a safe haven, but it was just a smokescreen. The worrisome climate in traditional markets, with investors increasingly cautious, has thus spread to cryptocurrencies, which have not acted as the backfire some speculators had hoped for. The price of Bitcoin rose from €41,500 in early January 2022 to €15,600 a year later…

terra crash, “a phenomenon very close to Lehman Brothers in the cryptocurrency world”

However, this change a bear market initially there was nothing that threatened the sustainability of the ecosystem. And for good reason, the sector is accustomed to periods of volatility. In addition, market contractions are also an opportunity to highlight the players with the strongest backend. But these market fluctuations were compounded by the collapse of the stablecoin Terra in May, which led to the collapse of the fund Three Arrow Capital and platforms such as Celsius Network and BlockFi.

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Indeed, the stablecoin of the Terra ecosystem suddenly collapsed, and investors lost $40 billion and more than 500 billion in the cryptocurrency market in just one week. Due to the massive cancellation of several wallets and a faulty algorithm, which led to the bankruptcy of the entire Luna (Terra) project, while it was among the most watched and anticipated initiatives in the entire ecosystem. .

Consequently, its failure put a huge damper on an already sunken market. “I think we experienced a phenomenon very close to Lehman Brothers in the world of cryptocurrencies. There was a chain reaction behind it. We experienced it in 2008 with the subprime phenomenon, unfortunately on a more dramatic scale. But in crypto finance, compared to global finance, more is underdeveloped, contains this phenomenon. The impact has been very severe because it is still a very young sector.”Coinhouse co-founder and CEO Nicolas Louvet analyzed Digital.

Sam Bankman-Fried, the face of cryptocurrency

The cryptosphere was not at the end of its troubles, and 2022 ended with a huge explosion caused by the FTX scandal. This crypto-asset exchange platform came into the spotlight after the announcements of the specialized media in early November. CoinDesk, shedding light on the interesting financial structure of Alameda Research, powered by FTT, a hallmark of the FTX platform. These two companies were founded by the same person: Sam Bankman-Fried, alias SBF.

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In the days that followed, new revelations raised awareness of the fraud that is FTX and its founder’s illegal financial practices. The SBF would even take the liberty of placing a backdoor in its accounting system that would have allowed it to discreetly execute orders to change the financial documents of a company with more than a million customers trying to get their money back.

What’s worse is that the American authorities accuse the 30-year-old of embezzling billions of dollars and violating American election laws by paying “stolen” sums of money from his investors to politicians in order to “gain influence” in Washington. Arrested in the Bahamas and later extradited to the United States, SBF faces up to 115 years in prison for all of his crimes. In itself, it epitomizes the mistrust currently rocking the cryptosphere.

Coinbase and Binance, giants under pressure

In this context, the behavior of market heavyweights such as Coinbase and Binance that are still standing will be very closely watched in 2023 by both investors and regulators. Moreover, the two mentioned companies are yet to send positive signals in recent months. Thus, Coinbase is in the crosshairs of the American stock market police SEC (Securities and Exchange Commission). Anxious to keep up with the competition, Coinbase has continued to add new cryptocurrencies to its platform. However, for the American regulator, some of these tokens are “legislative”.securities“In other words, the SEC suspects Coinbase of offering its users securities that must be registered in its eyes.

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To make matters worse, the SEC has already charged a former Coinbase executive, along with his brother and a friend, with insider trading. The latter are accused of conducting illegal transactions on at least 25 crypto-assets to make a profit of $1.5 million based on confidential information. Under these conditions, it is difficult to restore a climate of confidence in the cryptosphere, especially since the American company decided in mid-June to cut 18% of its workforce, or about 1,100 positions, which saw its valuation cut by almost seven in a year. . The company, which has been reeling since the cryptocurrency crisis, is no longer even in the top 10 cryptocurrency exchange platforms.

For its part, Binance is the first global exchange platform in the sector. It is a bully in the market and doesn’t even bother to play with the competition anymore. When FTX backed up to the wall in November, Binance pretended to save its rival before playing with executioners less than 48 hours after signing a letter of intent to acquire the platform from SBF. This Machiavellian maneuver is a figment of Changpeng Zhao’s imagination, says CZ, head of Binance, which sold $529 million in FTT tokens after CoinDesk’s revelations about FTX. After that, the price of FTT collapsed, creating a panic among investors who wanted to withdraw their assets as quickly as possible, effectively pushing FTX towards bankruptcy.

However, even if CZ can remove SBF and FTX from cryptocurrency, it still needs to show its credentials in certain aspects of its platform’s business. Indeed, fifteen French investors filed a complaint with the Paris prosecutor’s office against Binance, accusing the platform of engaging in deceptive commercial practices and violating French regulations governing cryptocurrency activities.

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Since the Pacte law of May 2019, digital asset service providers (PSANs) have been required to apply for authorization from the Autorité des marchés financiers (AMF) to carry out their activities on French territory. And if Binance really received the blessing of the AIF in May 2022, according to the lawyers of the plaintiffs, the platform did not wait for this green light to market its services and promote the following of French users. Claims about the world leader in cryptocurrency exchanges are also thrown aside. Desperate action by investors or a real violation of French regulations? The Paris prosecutor’s office will have to determine this. If not, the crisis of confidence plaguing the sector will worsen.

The cryptosphere will have to overcome a crisis of confidence in 2023

Although it is very cloudy, there are several transactions in the crypto-asset landscape that can steer the ecosystem in the right direction. This is especially true of The Merge event in mid-September. The long-awaited move was a turning point for the sector. And for good reason, those validating transactions like bitcoin are no longer minors, but validators responsible for ensuring the network functions properly. With its new approach, Ethereum became one blockchain Less power consumption consuming 99% less energy. In addition to limiting the pollution caused by the operation of Ethereum, this operation will allow for a tenfold increase in the possibilities it offers. blockchain. In this way, Ethereum has a great chance to be positioned as the cornerstone of Web3, which is heralded as the next major mutation of the web.

More than scandals like FTX, this kind of operation will restore credibility to the cryptocurrency ecosystem. If calm gradually returns to the sector, 2023 could be a year of consolidation that allows the cryptosphere to mature. In addition to innovations to take the Web3 turn, the arrival of international legislation such as the European Union’s MiCA (Markets in Crypto-Assets) regulation by 2024 should allow for further regulation of the sector. new title. It is at this price that investor confidence will return. For the sake of the cryptosphere, we’ll just have to hope there aren’t any new SBF around…

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