- The abysmal state of the crypto industry;
- Distrust and lack of confidence are restricting recovery;
- The Terra and FTX case study,
- Regulation in the crypto space should not be feared.
The Crypto Market Is in a Mess: Will the crypto market survive?
The crypto market is in a mess. Prices are down, there’s a lot of noise and confusion, and millions of investors have lost a great deal of money. As a result, confidence in the market is running at record lows, making any attempt at recovery at the moment difficult.
Source: Interactive Crypto
The question on the minds of many now is: what will it take to clean up the mess and reinstall confidence in investors? In this article, we’ll focus on the factors that have put the market in its present situation (we’ll limit the focus to 2022) and what areas of the market need work.
The Current State of the Crypto Market
As of November 24, 2022, the entire crypto market can be described as being underwater, with the total market valuation down by 60% year-to-date (YTD). The market valuation is down from its $3 trillion standing in November 2021 to $765 billion in November 2022, a gutting 74.5% crash for the entire market.
Source: TradingView | Total Market Weekly Chart
This crash was sponsored by the crash of “blue-chip” cryptos, such as Bitcoin (BTC), which is down by 60.5% YTD, and Ethereum (ETH), also down by 62% YTD.
Source: TradingView | Total Market, Bitcoin, and Ethereum Chart
Dwindling Confidence in the Crypto Market
As mentioned earlier, most market participants have lost confidence in the market, especially with several meltdowns across the industry this year alone. Since early April, the crypto Fear and Greed Index has not crossed above the 50 (average) point. This highlights a significant level of distrust and lack of confidence among investors. Also, for most of the past three months, the index has stayed glued to the 20 (extreme fear) mark, further driving the lack of confidence point home.
Source: Alternative.me | Crypto Fear and Greed Index
The Terra and FTX-Inspired Distrust
As you know, several factors have played out in 2022 to warrant this level of distrust. However, two, in particular, stand out; the Terra meltdown and the recent FTX crisis.
The Terra Meltdown
In May 2022, Terra came crashing around the ears of co-founder Do Kwon and tens of millions of investors. The crisis, which emanated from the de-pegging of the TerraUST Classic (USTC) algorithmic stablecoin, went down on record as one of the biggest wealth evaporations in the history of cryptocurrency.
Source: Google Images | Do Kwon
The Terra crisis sparked a chain reaction in the crypto industry, causing major lenders that were overleveraged on Terra to go bust. This sparked another round of heightened panic and further deteriorated confidence and trust, as well as the price of most cryptocurrencies.
However, after a few months, the market seemed to have forgotten the incident, but cryptocurrencies were now deeply entrenched in a crypto winter, which put a halt to any recovery in confidence. Little did we know it was going to get worse.
The FTX Crash
Fast-forward to early November, and news of FTX, the second-largest cryptocurrency exchange at the time, being involved in shady dealings and battling insolvency, broke the already fractured market again.
Source: CNN | Sam Bankman-Fried
In both scenarios, it didn’t help that the leaders largely responsible for hundreds of billions of dollars in losses and a worrisome amount of suicides seem to be moving on with their lives as though nothing ever happened. Do Kwon’s location is currently unknown, but he frequently makes tweets and honor interviews, while Sam Bankman-Fried is reportedly spending time with family and friends in the Bahamas and getting invites to major conferences.
No one has yet to be tried or convicted for the destiny-altering events the Terra and FTX collapses caused in 2022, and this will likely keep the distrust mill running.
The Road to Cleaning Up the Market: Cryptocurrency Regulation
The situations surrounding Terra and FTX in the run-up to their eventual downfall would have been prevented or at worst mitigated with adequate industry regulations in place.
Cryptocurrency regulation has been a longstanding discussion in many circles but continues to evade implementation due to the complexities involved with the industry and a lack of political will. However, the recent occurrences and crises in the market will likely prompt regulators into action.
Granted, the US and UK have drafted some crypto legislation in recent months, but political gridlock and conflicting interests have left this space largely unregulated for the longest time.
Cunliffe Believes Regulation will Foster Innovation…and He’s Not Wrong
While some may argue that regulating the crypto space could stifle innovation, Jon Cunliffe, deputy governor of the Bank of England (BoE), argues otherwise.
Speaking at a conference on DeFi and digital currencies, Cunliffe explained that the crypto industry should be regulated for three primary reasons: investor protection, financial stability, and improved innovation. Emphasizing the third reason, Cunliffe said:
“The third reason may appear counterintuitive to those who see regulation as opposed to innovation. But, as I have said before, ‘people do not fly in unsafe airplanes’. Innovation may start in unregulated spaces. But it will only be developed and adopted at scale within a framework that manages risks to existing standards.”
Industry Experts Weigh In
Other industry experts have made similar statements to this effect, arguing that regulation will be a good thing for the industry. They believe that more regulation translates to more stability in what can be described as a notably volatile space.
Crypto regulation also closes the door on fraudulent activities and bad actors within the crypto space while leaving room for genuine innovation and growth.
Ben Weiss, CEO and co-founder of CoinFlip, recently noted: “Sensible regulation is a win for everyone,” adding:
“It gives people more confidence in crypto, but I think it’s something we have to take our time on and we have to get it right.”
Will the Crypto Market Survive and Gain Confidence Again? To answer the question of what it will take to clean up the mess in the industry and reignite confidence among investors, you need to look no further than regulation.
Source: Elliptic | Global Crypto Regulation
As the experts have harped on, a regulated market will work in favor of all stakeholders in the industry by ensuring more stability, transparency, protection, and accountability in this blistering industry.