The crypto sector tries to recover its pulse six months after the bankruptcy of the FTX platform, which last November triggered the worst crisis in this industry.
Contrary to some forecasts, the fall of that popular platform – the fourth in size, had a million users and was valued at 32,000 million euros – has not caused a great domino effect. In recent months, there has been no bankruptcy of any of the large crypto-asset exchange platforms, such as Coinbase or Binance. However, the sector has suffered from the banking crisis in the United States with the closure of Silvergate Capital and Signature Bank, two banks closely linked to cryptocurrency companies.
“We have overcome the crypto winter and now we are entering the crypto spring,” says Victoria Gago, head of the organization of the European Blockchain Convention congress. Over the past six months, bitcoin's valuation has rallied more than 50%. Now, the value of this cryptocurrency is equivalent to about 24,900 euros, a record similar to that of the beginning of 2021, when it had not yet experienced the boom that led it to exceed 56,000 euros.
“Confidence is slowly rebuilding, although the industry will not regain strength until the end of next year. The bankruptcy of FTX has led to a serious reputational crisis, and institutional and pension funds are still extremely conservative with investment in crypto assets," says Eneko Knörr, co-founder of Onyze, a company that custodies digital assets, and of the startup Stabolut, specialized in decentralized finance.
Proof of the slow recovery is the lack of dynamism in venture capital investment in industry projects. According to data from the consulting firm Pitchbook, reflected in the graph, investment has been 2,600 million dollars in the first quarter of the year, which represents a fall of 11% compared to the same period of the previous year. Operations have also decreased by 12%, to 353 investments. According to Pitchbook, these results consolidate a decline for four consecutive quarters. This is explained by the failure of large projects (before the bankruptcy of FTX, Celsius, Terra Luna and the Three Arrows Capital fund also collapsed), but also by the unfavorable global situation, which has reduced liquidity in the markets and the investment in startups.
But the prudence of venture capital funds is not the biggest puzzle in the crypto sector, nor are their efforts to demonstrate the use of technology beyond speculation. The big stumbling block is the regulation of its activity in the United States. Since the alleged fraud of the FTX platform was uncovered, the Securities and Exchange Commission, known as the SEC, has tightened the siege against other platforms, such as Coinbase, Gemini, Ripple or Genesis, who have opened investigations for alleged irregularities and Lack of transparency in their operations. “The entire sector is frustrated,” Joe Lubin, co-founder of Ethereum (one of the main cryptocurrencies) admitted last week to CNBC. And the president of Blockchain.com, Nicolas Cary, added: “I think we will continue to see the SEC play this game of penalizing the people who are still surviving. And that's frustrating." Even more so when in just three months two banks that supported them have disappeared, Signature Bank and Silvergate Capital.
In the United States there is no specific regulation for the crypto sector, but bank deposit regulations apply. With the bankruptcy of FTX, President Joe Biden announced the intention to approve a regulation, but there is no progress on it. The industry would like to, too, but the SEC is convinced that the current regulatory framework is sufficient. Earlier this month, the institution's president, Gary Gensler, was especially critical of the industry in a letter, saying that “some crypto firms may say the rules are unclear rather than admit their platforms do not provide enough investor protection.” ”.
The picture is different in the European Union. This week, the EU Council for Economic and Financial Affairs (Ecofin) gave the green light to the MiCa regulation, which is expected to enter into force in July 2024 after several months of delays. The regulations will regulate transactions, data management, identities and access keys and will force countries to have a supervisory body.
In the rest of Europe, Switzerland has become the most favorable country for transactions with crypto assets, while the United Kingdom is debating a tailor-made regulation. The government wants to regulate it as a financial asset, although a British Parliament committee warned last week that the legislation should be dealt with in the same way as gambling. “Cryptocurrencies have no intrinsic value and are more like a gambling game than a financial service. The events that have occurred throughout 2022 have highlighted the risks of the industry, and the majority of companies still operate in the Wild West,” said the legislator.
