After taking a huge hit in 2022, Crypto markets might or might not improve
With the demise of industry titans including digital asset exchange FTX, algorithmic stablecoin TerraUSD, and now-defunct hedge firm Three Arrows Capital in 2022, cryptocurrency markets suffered a significant jolt. According to data from Messari, the market valuation of the sector is down more than 65% from record highs in November 2021, with Bitcoin and Ethereum down more than 60% year to date. From 2018 to 2019, the industry saw a “crypto winter”-style 18-month bear market. Many people are wondering if things could possibly become worse.
The spotlight is on Digital Currency Group, the conglomerate that manages heavyweights such as asset management Grayscale and cryptocurrency brokerage Genesis. After its loan division stopped withdrawals in November, Genesis has come under pressure. With $175 million stranded on an FTX trading platform, the company was exposed to Sam Bankman-defunct Fried’s exchange. After FTX declared bankruptcy, customers, according to Genesis, rushed to withdraw money, creating a serious liquidity bottleneck. According to Andrei Grachev, the managing partner at digital asset market maker DWF Labs, “the eventual demise of Genesis has been a matter of concern for some time, given the majority of its assets are controlled by US hedge funds and the market has already adjusted for this news.”
“While the collapse may not have a significant effect on the industry overall, it signals the end of an era as DCG, long anticipated to be the last domino to fall, will finally succumb,” he continued. According to a corporate spokesperson who talked to Insider on Thursday, Genesis reduced its workforce by 30%, with the sales and business-development teams taking the brunt of the reductions. The cryptocurrency exchange Gemini is attempting to recover $900 million in customer payments from the troubled company Genesis after lending Genesis money for its interest-bearing product. If a sizable company like Genesis or its parent company DCG were to declare bankruptcy, there might be significant losses and liquidations throughout the industry. “Bankruptcies and legal battles will last for many years. The coins from Mt.2014 Gox’s bankruptcy are still awaiting distribution today “In an interview, Tegan Kline, CFO and co-founder of software company Edge & Node, stated. The scenario between DCG, Genesis, and Grayscale is currently the biggest unsolved issue, and we are waiting to see what happens there.
This year, the FTX contagion may also result in more bankruptcies and legal actions. According to Fedor Muegge, partner at blockchain venture capital firm 369 Capital, the sector hasn’t yet completely experienced the impact of the FTX or Terra and Luna explosions. “We haven’t even begun to fully disentangle FTX and its corporate network. More lawsuits may result from further research on this and inquiries into other recent events, including the Terra-Case “Muegge declared. Additionally, during this protracted down market, many smaller players may run out of money, which will eventually result in more bankruptcies, he continued.
Youwei Yang, Chief Economist at cryptocurrency mining company BTCM, stated that “it’s possible with major market shock(s), crypto can go even lower than Luna/UST/3AC and FTX times, to $12-13K Bitcoin and $8-900 Ether.” Yang cited potential harsh macroeconomic conditions, constrictive regulatory environments, or DCG bankruptcy.
If there’s anything we’ve learned from cryptocurrency in 2022, it’s that if something seems too good to be true, then it definitely is. As a result, expect a turnaround on double-digit interest yield offerings from centralized corporations. Celsius, a centralized lender, offers consumers deposit rates of about 20% per year. After experiencing a cash difficulty in July, the company later declared bankruptcy. Tegan Kline, chief business officer and cofounder of software company Edge & Node, stated in an interview that “centralized loan and earn products are going the way of the dodo.” Specifically in DeFi, web3 protocols and dApps still offer appealing yields. Investors may as a result start using decentralized exchanges like Uniswap, DeFi protocols like Aave and Compound, or decentralized finance. As with Ethereum or DeFi protocols, which have successfully weathered the crypto loan crisis, there are several protocols that offer income from staking to network security.