Crypto: Is This The End

The dowanfall of FTX has dealt a catastrophic blow to the prophets of digital money but it is worth remembering the technology’s underlying potential

09:00 | 2 декември 2022
Снимка: Pixabay
Снимка: Pixabay

By Andrey Stoychev

So many interesting and turbulent events in such a short period of time are hard to find in any other industry. The crypto community has witnessed several ups and downs in just a decade, small garages turned into multi-billion dollar companies, and then - back to garage companies. A lot of people got rich, and an equal amount got poorer.

As the industry evolved, many services developed, and thousands of professionals from traditional finance, law, and trading were brought in. The more the industry developed - the more regulators from the US to Japan and Europe to South Africa looked at this business and wondered how and when to dress it up in a regulatory framework. As in many other similar industries, the regulator is acting retroactively. Instead of already bringing the industry within normal and logical frameworks to ensure that companies, which in turn manage and/or operate with money from ordinary investors and speculators, are adequately managed, the regulator (and not in all countries and regions) has timidly started to require certain registrations and rules. And while there is an ongoing debate about how strictly and how to regulate crypto companies, in just a few months, leading global companies with billions of dollars of capital raised have gone bankrupt. The world's second-largest crypto exchange, FTX, a unicorn startup valued at $32 billion and a leader in services, innovation, technology, and products, also went bankrupt.

These last 4-5 months of bankruptcies and liquidity difficulties of many companies and, in addition, the complex economic situation in the world, forcing a change in the policy of central banks led by the Federal Reserve and the European Central Bank, has seriously shaken the price of cryptocurrencies. The confidence of investors and traders has also been shaken, and quite understandably so. Even these days, the question is more about who will be the next bankrupt, not whether there will be more bankrupt companies.

In the short term, these factors and events negatively impact the crypto sector: volumes are shrinking, liquidity is decreasing, and big players are exiting the market, facing unknowns rather than real opportunities. But if we look longer term - we might find many positives. To retain and/or grow their clients, companies have become sharply (and, hopefully, for a long time) transparent, self-disciplined, and self-regulated. There is a willingness to do things the right way and not at any cost. Serious companies have been investing in money-making technology and developing technology that protects the business in times of force majeure, risk management, and a careful approach to every new market situation and opportunity.

And to the question of how we can come across a serious and customer-caring crypto company where our money is safe, the answer is very simple - if the goals of our potential business partner are solely to increase revenue and over 80% of the team is related to sales and business development - there is enough food for thought. On the other hand - stable companies have their feet firmly planted on the ground and are looking long term. They have a development plan for the next 5-10 years, not just a few months. They work hard for their customers' trust, to prove that they are doing the right thing, and look to work and communicate with the local regulator proactively.

Come to think of it, very soon, and all these best practices will become mandatory. After the FTX bankruptcy, the last shred of doubt about whether the businesses need regulation is gone. Rules are mandatory, rules are important, and rules are necessary. And there is no more opportune time than now. On the one hand, all traders, investors, and holders of crypto assets can be safe about their money and once and for all stop this doubt and fear of money disappearing, and on the other hand, the companies themselves can be protected and have a chance for longer-term existence and development.

It is worth noting two serious disadvantages with such a development: the service becomes more expensive, and all the current and future costs that are generated to secure and comply with all the regulatory norms, manage the books adequately, and manage all the risks arising around such an organization must be covered, and this is accomplished through the price of the service that is delivered. The second downside is consolidation. Unfortunately, it will be difficult for new startups and small companies to emerge in a highly regulated environment, wanting and dreaming of taking on the big guys. The costs will be too high, making it difficult for any new venture in the field, and the reduction in competition usually leads to a deterioration in service, and, again, the end customers will be the victims.

In conclusion, we can safely remain optimistic about the crypto industry, cryptocurrencies, and everything related. There will be more price shocks, and more companies will not be able to cope with the competition and dynamic market conditions, but the environment will become increasingly secure, protected, and regulated. There will be many opportunities for new fintech companies, traders, and investors. Now, we can invest our money, trade, and focus on analyzing the market more calmly.