Understand if the worst of the crisis passed to bitcoin and other cryptocurrencies

The collapse of the FTX has sent the price of bitcoin and other cryptocurrencies down over 60% this year. And the crisis has spread to publicly traded companies with exposure to digital assets.

Shares in Coinbase, owner of Square Block, major bitcoin miners Hive and Riot, crypto bank Silvergate and software company MicroStrategy, led by crypto evangelist Michael Saylor, have plunged in the past month.

But is the worst over? After all, volatility has been a constant in this nascent industry.

This is not the first crypto winter, as longtime bitcoin fans can attest. There were massive fixes in 2018, early 2020 and summer 2021 as well.

So could cryptocurrency prices and stocks bounce back in 2023? Some experts think so…but they believe investors need to have more reasonable expectations.

“It is very clear that we as an industry need to create better products,” said Hany Rashwan, CEO of 21.co, a crypto investment firm. “There has been a lot of confusion in the market in the past. People were chasing the exuberance.”

Still, Rashwan said he’s a little surprised that the crypto “crisis” hasn’t gotten worse.

As bad as the recent sell-off has been (bitcoin is down more than 15% in November alone), the price of bitcoin is still hovering around $17k. That’s nearly triple where prices were during the cryptocurrency market’s depths in the early pandemic days of 2020.

“How are we still approaching $17,000? That says something. It is indicative that people are still using cryptocurrencies and trying to protect assets. Confidence has not been completely shaken,” said Rashwan.

Others point out that the underlying blockchain technology behind bitcoin and cryptocurrency remains solid.

“We will see some challenges soon. But we expect improvements. That will be a catalyst. There will be increasing institutional adoption,” said John Avery, Strategy and Product Lead for Crypto, Web3 and Capital Markets at FIS.

Avery said he also expects to see more regulatory clarity for cryptos in 2023. “There is always a need to balance innovation and investor protection,” he said. “Regulation does not always resolve all of this. But it’s important.”

Others point out that the rapid demise of FTX should also serve to bolster the companies that survive this crypto meltdown. Coinbase, in particular, could end up benefiting in the long run, even if the stock is currently suffering.

“The rapid failure of FTX will invite greater regulatory oversight and industry scrutiny, which we hope will translate into clearer guidelines for crypto market participants,” said Fadi Massih, Group Vice President of Financial Institutions at Moody’s Investors. service. “This would likely benefit Coinbase given its size and more established position in the industry.”

But the crypto woes should once and for all prove to investors that bitcoin is not (and never will be) a replacement for the US dollar or other government-backed currencies. Cryptocurrencies are still a speculative asset. This is not a problem per se. But investors just need to know the risks.

“Cryptocurrencies have been praised by some for their decentralized nature, ease of transaction and low transaction costs, but even bitcoin, the oldest cryptocurrency, continues to be more volatile than stocks and bonds, preventing it from being a viable reserve. of value,” Jason Pride, director of private equity investments and Michael Reynolds, vice president of investment strategy at Glenmede, said in a report.

Pride and Reynolds added that it is erroneous to think that bitcoin can hold up well during stock market volatility. Instead, this year has proven that crypto doesn’t make a good hedge, especially when tech stocks dip. So this also “greatly limits its use as a portfolio diversifier.”

Source: CNN Brasil

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