The crypto industry is at a watershed moment; getting things right in the coming year will matter profoundly
The wild year of 2022
The year 2022 will perhaps be marked as the most turbulent in the history of the crypto industry. In the post-pandemic world, global economies are recovering at different paces, with investors concerned about macroeconomic pressures such as inflation and geopolitical tensions across Europe and parts of Asia.
Nasdaq 100 has dropped nearly 33 percent so far as of the end of September, and the S&P 500 is poised for its worst annual performance since the 2008 financial crisis, down 15 percent on the year through the end of November. Despite aggressive rate hikes, the US Federal Reserve Bank has yet to reign in inflation. Taking a quick glance at the crypto industry, the market is riddled with chaos and disarray.
The story started with leading cryptocurrencies such as Bitcoin and Ethereum suffering huge price losses due to an increasingly hawkish Fed, which led the broader crypto market into a deep bear market. CNBC reported that Bitcoin lost about 58 percent of its value in the second quarter of 2022, posting its worst quarterly performance since 2011, and its market cap fell below $1 trillion in September.
The subsequent fallout of TerraUSD wiped out more than $200 billion in market cap, and the shocking failures of Three Arrows Capital and lending juggernaut Celsius Network sent the market into a death spiral unlike any other, nearly precipitating a complete collapse of the entire crypto lending ecosystem. Then came the epic downfall of the once highly respected crypto exchange, FTX. Former Treasury Secretary Larry Summers described the dramatic unfolding of its default to bankruptcy is seen as the “Enron Moment.” The crypto market is now at a watershed moment and what the industry does in the coming year to reverse the trend will matter greatly.
Changing for the better
To start with, the ethos of getting rich quickly and betting on high-risk positions in hopes to push crypto prices “To the Moon” needs to be toned down. The public perception of crypto’s legitimacy hasn’t changed much (56 percent neutral stance) since the invention of Bitcoin in 2008 despite adoption having increased to where “one in five Americans has invested in, traded or otherwise used cryptocurrency,” as reported by an NBC News poll.
As more people enter the crypto space for fresh opportunities, the industry must create a more professional environment and stick to higher moral principles. Binance CEO Changpeng “CZ” Zhao advised the industry that big lessons we learned from FTX fallout are to “never use a token you created as collateral, don’t borrow if you run a crypto business, don’t use capital ‘efficiently’. Have a large reserve.”
We need to remind ourselves of the core values of Bitcoin, the ethos of decentralization, personal financial security, and the goal of transforming the financial system for the better. In doing so, more talents from traditional finance, big tech, and other critical sectors will flow into the crypto world with more confidence and a clear purpose.
What’s ahead in 2023?
Stepping up global cooperation with regulators is essential for the industry’s long-term growth and prosperity. The goal should not be for the crypto industry to assimilate into traditional finance or be treated the same way, but rather, regulators should consider a more creative and dynamic approach that provides a more open space for dialogue.
Strong retail investor protection needs to be implemented by both the private and public sectors. Marketing needs to be more grounded and consider that overpromising large returns but under-delivering will only diminish more investors’ confidence in this space (think about FTX’s Earn program). The Monetary Authority of Singapore and Hong Kong’s Securities and Futures Commission have proven such an approach effective, vying for their crypto hub status in Asia.
From promoting better crypto investment education to constructively working with regulators, trust building takes time and requires consistent, careful management. Every player in the crypto industry needs to do their fair share in advocating for a more transparent, fairer, and sustainable growth model. The good news is that the process has already begun, first kicked off by major exchanges voluntarily revealing proof of reserves and followed by Binance’s Industry Recovery Initiative, pledging $1 billion to help struggling firms and projects affected by recent high-profile collapses. Doing the right thing is more important than ever for the industry, and I’m hopeful that more players will be part of the solution and push for progress that benefits the greater good.
With contributions from Will Schaefer.
Yiwei Wang is an avid blockchain enthusiast with a focus on the intersection of crypto, economics, and public policy. He was previously the Global PR Lead at Babel Finance and he began his career at Ogilvy in Beijing. He is currently the Crypto PR lead at Eleven International, a boutique tech-focused communications agency.
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Beyond dominance in single crypto hub, a global alliance is necessary