Cryptocurrency industry executives and regulators don’t often have similar views on something. However, they seem to agree that the recent turmoil in the crypto market could be positive and help to remove unsustainable projects and bad actors.
At least that was the prevailing consensus at the Point Zero Forum, a closed meeting for investors and policymakers that took place in Zurich, Switzerland, last week.
The total market capitalization of the crypto sector is around $1 trillion, down from a record $2.7 trillion in October, according to data from aggregator CoinGecko.
“There is a bloodbath going on,” Ravi Menon, managing director of the Monetary Authority of Singapore, said at a panel on the future of financial services on Wednesday, referring to the billions of dollars – and companies – leaving the market.
The collapse of the $18 billion TerraUSD (UST) algorithmic stablecoin in May has infected the entire industry. Hedge fund Three Arrows Capital has since revealed that it has suffered heavy losses as multibillion-dollar crypto lender Celsius Network has frozen withdrawals.
Prominent cryptocurrency companies around the world such as US-based Coinbase and Gemini and Europe-based Bitpanda have reduced hiring.
Menon believes the exodus can help weed out bad actors.
“That’s not necessarily bad,” he said. “For the regulator, as for the central bank, this is a great opportunity to separate the wheat from the chaff.”
Also on the panel, Bank of England Lieutenant Governor Jon Cunliffe compared the market crash to the internet bubble. Excessive speculation led to rising valuations of US technology stocks in the 1990s. In 2000, however, the bubble burst.
“Many companies left, but the technology didn’t disappear and came back 10 years later,” Cunliffe said, pointing to survivors like Amazon. “So whatever happens in the next few months with the crypto assets that people trade, I expect crypto technology and finance to continue.”
The recent market meltdown underlines the growing urgency to establish regulations for the sector.
On June 7, U.S. Senators Cynthia Lummis and Kirsten Gillibrand introduced a comprehensive bill that would govern cryptocurrency service providers as well as include detailed disclosure requirements for issuers of stablecoins in light of the collapse of the Earth ecosystem.
The “Markets in Crypto Assets (MiCA)” bill, which also sets out requirements for stablecoin issuers, is also making headway in Europe. Additionally, the UK announced in April that it planned to introduce a regulatory package for crypto and regulate stablecoins under existing payments legislation.
Crypto sector companies and regulators need to strive to make the sector more sustainable, Agustín Carstens, general manager of Bank for International Settlements (BIS), a central bank-owned financial institution, said during the conference in Zurich.
“The degree of leverage in many of these transactions is completely abnormal,” Carstens told a panel on the future of financial services. “You can’t defy gravity. You are performing an extremely risky operation. If something goes a little wrong, the possibility of a crash is very high.”
Slowdown is welcome
Several crypto industry heavyweights in attendance said the market crash has an upside.
“This slowdown is welcome,” said Kris Marszalek, CEO of digital asset exchange Crypto.com, at a panel on the future of cryptocurrencies. “This is the time to demonstrate how the real [empresas de criptomoedas]only delivering real value, can continue to build [e] be the steady hand and the calm voice in volatile times.”
Brad Garlinghouse, CEO of fintech Ripple Labs, said the slowdown could wipe out unused tokens.
“I think the vast majority of tokens will disappear over time because I can’t figure out the usefulness… Dogecoin (DOGE) is a clear example of [algo que] it was never designed with utility. The founders left the project, which moves based on Elon Musk’s tweets.”
During his panel, Changpeng Zhao, CEO of Binance, the world’s largest cryptocurrency exchange by trading volume, suggested that crypto entrepreneurs need to have a clear business model.
“If you’re only getting users because you’re using incentives to attract them, that’s not a real business model. Eventually, you’re going to run out of money and you’re going to go broke,” Zhao said at a panel on Wednesday on weathering the storm and the next phase of growth.
The industry will take a long time to recover, but “the worst part is probably over,” Zhao added.
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