After the euphoria of 2021, the cold shower and the scandals. A year ago, cryptocurrency experts still promised a new world, “increased acceptance of bitcoin as a means of payment, increase in NFT activity”also giving rise to “the new currencies of the Metavers”… against the background of“more regulatory scrutiny”. The sharp increase in interest rates, the collapse of tech stocks, the fall in cryptocurrency prices and ever stronger cracks in a still nascent and fragile ecosystem have shaken the most optimistic ones a bit.
The explosion of cryptocurrency exchanges in recent years, however, has raised fears “new frauds and new schemes in 2022”warned a study by Queen’s University, broadcast by the site The conversation. So, simple growth crisis or deeper questioning of cryptocurrencies, or even its underlying technologies, such as the blockchain? This is the question being asked today.
Deep crisis of confidence after the scandals
In fact, 2022 will have seen a succession of crises and collapses: collapse of the Celsius Network trading platform and of the stablecoin – supposedly more resilient because it is backed by the dollar – TerraUSD in May, sensational bankruptcy, undoubtedly fraudulent, in November of the FTX empire, still rated at $32 billion in early 2022… and the 60% decline in cryptocurrency capitalization to around $1.3 trillion. Bitcoin, the cryptocurrency star that saw its value double in 2021 to a peak of nearly $65,000, is now trading around $16,000. Its challenger, ether, fares no better, with its price falling 73% in one year.
A domino effect has swept through the sector, one crypto-asset acting as a counterpart to another: BlockFIn, Genesis, the hedge fund Three Arrows Capital, the Gemini lending platform of the Winklevoss brothers, the French Coinhouse… many platforms are found exposed by FTX failure. Most recent, Core Scientificone of the largest publicly traded cryptocurrency mining companies in the US, filed for bankruptcy in December. The scale is such that some make the analogy with Lehman Brothers, which had sowed panic in the markets and brought several banks with it.
“The return of trust will take a long time because trust is earned drop by drop but lost by the litre,” summarizes Clément Coeurdeuil, co-founder of the Yuzu platform.
The regulatory wind will blow stronger in 2023
Furthermore, the year 2023 should mark the end of a certain regulatory laxity. In Europe, this would mean the entry into force, at the earliest of 2024, of the European MiCA directive (Cryptocurrency market), the text that fixes the definition of each digital asset and imposes homologation on the players, perhaps before a new regulatory tightening. The head of the European Central Bank (ECB), Christine Lagarde, has already called for a “MiCA 2”.
The European text is also very inspired by French legislation, which established the status of digital asset service provider (Psan), supervised by the Autorité des marchés financiers (AMF) by the Pacte law of 2019. In other words, it will be necessary to request licenses and other registrations before operating anywhere in the Old Continent. In addition, these service providers will have to prepare next year for the severance pay regulations (Regulation on the transfer of funds) which will oblige, in 2024, to identify the originator as well as the beneficiary of a transaction in cryptos.
” Cryptocurrency issuance projects without a real business model behind them should no longer find buyers, with more stringent regulations, especially on the economic aspect. The MiCA regulation could have this effect of “ flight to quality on the cryptocurrency market. The gap between the real value of assets and their “Tokenian” rating should continue to narrow,” predicts Franck Guiader, Director – Innovation & FinTech at Gide Loyrette Nouel.
In the United States, the Biden administration certainly wants to facilitate crypto transactions but punish fraud more severely, under the guidance of the SEC and its boss Gary Gensler. In the meantime, market platforms, and in particular the most important ones, such as the world leader Binance, based in Hong Kong, or the American Coinbase, listed on Wall Street, and therefore subject to greater transparency, will mobilize their efforts to reassure customers, investors and… regulators.
Towards a bull run in 2023?
“An interesting thing to follow in 2023 will be the activity of traditional finance players, especially banking: they have a window of opportunity that is not expected to recur every year. Their pure player competitors are facing a discount in their valuation and confidence crisis, regulation is structuring and opening up the possibility of offering cryptocurrency services and demand continues to grow” appreciated Alexandre Stachchenko, blockchain and crypto director at KPMG France.
This wind of regulation should whet the appetite of investment funds that have already started a rapprochement towards crypto during the euphoria of 2021. After the “ bear market down in 2022, the “ bull run of the cryptocurrency market, is on everyone’s lips.
“If valuations appear more “fair,” particularly through standards and methods shared by the crypto community and recognized by regulators, investors should follow and participate in this “bull run” what is expected”confirms Franck Guiader of Gide Nouelle.
But for crypto platforms, 2022 will leave an indelible mark.
“Two phenomena could be observed in 2023. First, a concentration of platforms, given the difficulties encountered, and the need to generate volumes to become more profitable. The year of preparation for entry into MiCA should encourage platforms to integrate new legal skills, cybersecurity experts and commercial developers to start new partnerships, especially abroad.anticipates Franck Guiader.
“Healthy” platforms will likely be forced to scale and refocus. For example, Kraken is downsizing and withdrawing from Japan. Less sane platforms will find it difficult to hide their flaws and will find themselves in a delicate situation.”Alexander Stachchenko abounds.
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The acceleration of central banks
At the same time, and already in the pipeline for several years, central banks will try, in 2023, to materialize their digital currency project to offer an alternative to cryptocurrencies.
While crypto-asset adoption is happening fastest in emerging countries, central banks in these countries are accelerating in parallel, according to a recent study by Chainalysis. In 2023, the trials will therefore take place in Egypt, Turkey and India. In the midst of the war in Ukraine, Russia also intends to continue its experiments in 2023 on the digital ruble.
Finally, the European Central Bank (ECB) could make progress on its digital euro, despite the hesitations of the banking sector.
“It is not unlikely that the ECB will propose its digital euro project. I sincerely hope that the subject is more politicized than it is today. This is an essential issue for all citizens and the direction taken at the moment is an alleged Chinese model. Mrs Lagarde (President of the ECB, ed) recalled that Europe was lagging behind China”says Alexander Stachchenko.
But, in Europe as in the United States, the road to adopting an “MDBC” (digital central bank currency) is still long. In 2023, “Central banks’ response to the ‘tokenization’ of part of the economy will have to be done by refining the use cases for which another currency format might be useful. Central bank digital currency could initially meet certain needs and certain technological standards in BtoB, given the use of blockchain, for example, by some financial infrastructure” anticipates Franck Guiader.
Finally, to be observed in 2023, the effects of recent legislation in Kazakhstan, one of the world’s leading producers of cryptocurrencies with mining activities. While China has already officially banned mining in 2020, the state has tightened its legislation on the cryptocurrency creation industry, imposing new taxes and a mandatory license for mining companies.
Read alsoEmerging countries at the forefront of cryptocurrency adoption