The crypto sector is trying to regain its pulse six months after the failure of the FTX platform, which in November triggered the worst crisis in this industry.
Contrary to some forecasts, the fall of this very popular platform - the fourth largest, had 1 million users and was valued at 32,000 million euros - has not caused a large domino effect. In recent months, none of the major crypto-asset exchange platforms, such as Coinbase or Binance, have gone bankrupt. However, the sector did suffer from the US banking crisis 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, responsible for the organization of the European Blockchain Convention. Over the past six months, bitcoin's valuation has recovered more than 50%. Now, the value of this cryptocurrency is equivalent to around 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 being restored even though the industry will not regain vigor until the end of next year. The bankruptcy of FTX has resulted in a serious reputational crisis and institutional and pension funds are still extremely conservative with investing in crypto assets”, says Eneko Knörr, co-founder of digital asset custodian Onyze and startup Stabolut , specialized in decentralized finance.
Proof of the slow recovery is the low dynamism of venture capital investment in industry projects. According to data from the consulting company Pitchbook, reflected in the graph, the investment was 2.6 billion dollars in the first quarter of the year, which means an 11% drop compared to the same period of the previous year. Operations have also decreased by 12%, up 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 situation on a global scale, which has reduced liquidity in the markets and investment in start-ups.
But the prudence of venture capital funds is not the biggest problem in the crypto sector, nor are their efforts to demonstrate the use of the 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, to which it has opened investigations for alleged irregularities and lack of transparency in their operations. "The whole sector is frustrated", admitted Joe Lubin, co-founder of Etherum (one of the main cryptocurrencies) on CNBC last week. And the president of Blockchain.com, Nicolas Cary, added: “I think we will continue to see how the SEC plays this game of penalizing the people that we still survive. And that's frustrating." Even more so if you consider that in three months, two banks that supported them, Signature Bank and Silvergate Capital, have disappeared.
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 the issue. The industry would like to see them, but the SEC is convinced that the current regulatory framework is sufficient. This month, the institution's president, Gary Gensler, was particularly critical of the industry in a letter saying that “some crypto companies may say the rules are unclear before admitting their platforms don't give enough investor protection”.
The picture is different in the European Union. This week, the Economic and Financial Affairs Council of the European Union (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 require countries to have a supervisory body.
In the rest of Europe, Switzerland has become the most favorable country for crypto-asset transactions while the UK is debating a tailored law. The Government wants to regulate cryptocurrencies as if they were a financial asset. However, a committee of the British Parliament warned last week that the legislation should be approached in the same way as the game. “Cryptocurrencies have no intrinsic value and are more like a gambling game than a financial service. The events that happened throughout the year 2022 have highlighted the risks of the industry, and most companies still operate in the wild west", said the legislator.
