Bitcoin Soars Past $30,000 Is Another Crypto Boom Coming?
(Bloomberg) — When Bitcoin plunged from around $30,000 to below $20,000 in a little more than a week last year, Three Arrows Capital co-founder Su Zhu described the tail spin as the “nail in the coffin” for his hedge fund.
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Fast forward to today, and the largest cryptocurrency has just bounced back from $20,000 back to $30,000 in the past month – but the industry is a shadow of what it was the last time the token crossed that milestone. That’s because several coffins were hammered again in the domino-like wave of bankruptcies that followed the Three Arrows’ collapse: Voyager Digital, Celsius, FTX, Blockfi, Genesis Global and other former high-flying startups.
Clearly, while sentiment has improved compared to last year’s apocalyptic mood, the promising Bitcoin rebound alone will not be enough to fix all the damage from last year’s scandal-filled downturn.
Read more: All the ways crypto broke in 2022
“The feeling here doesn’t seem to be that the last few weeks mean we can pretend the last 10 months never happened,” said Oliver Lynch, CEO of trading platform Bittrex Global, speaking on the sidelines of a crypto conference. in Paris. “But there’s certainly a sense that maybe this signals that a line can be drawn under these scandals, and we can get back to evaluating — and valuing — crypto without all the noise of the rumors and wrongdoing.”
The alleged wrongdoing has sparked a deluge of regulatory scrutiny and high-profile prosecutions in the United States.
Among the most prominent: FTX’s Sam Bankman-Fried awaiting trial on fraud charges; Do Kwon, co-founder of the Terra blockchain, faces criminal prosecution for his role in that project’s collapse; Binance and its CEO Changpeng “CZ Zhao have been sued by the Commodity Futures Trading Commission for a number of alleged violations; and Coinbase Global Inc. has received notice that the Securities and Exchange Commission intends to sue the company. Binance and Coinbase have denied any misdemeanor; Bankman-Fried has pleaded not guilty.
Then there is the recent failure of crypto-friendly banks Silvergate Capital Corp., Signature Bank and Silicon Valley Bank. Although they were often cited as a bullish catalyst for Bitcoin, since they revived its origin story as an alternative to unreliable banks, the downfall of these lenders also severed key links to the US financial system, helping to dampen the once-promising future of the crypto industry. as uncertain as ever.
Many of the retail investors burned by last year’s price drop appear to be licking their wounds, rather than taking on new risks, as the amount of money involved in decentralized finance projects remains muted. While the total value of coins locked into DeFi projects has increased by more than 25% since the beginning of January, at around $50 billion, it is still a fraction of the $180 billion peak reached in December 2021, according to DeFiLlama- the website.
At the same time, thousands of jobs have been lost in the industry and employment has not picked up again. In a sign that the supply of talent continues to outstrip demand, blockchain project Concordium received more than 350 applications for a pair of new vacancies, co-founder and chairman Lars Seier Christensen said. “The space is maturing a little bit, realizing that the money tree that was available a couple of years ago has withered a little bit,” he said.
Investments from venture capital firms have slowed dramatically. Private funding for crypto startups globally fell to $2.4 billion in the first quarter, down 80% from the record $12.3 billion in the same period last year, according to PitchBook.
“Much of the industry is still in wait-and-see mode,” said Matteo Dante Perruccio, international president at crypto-asset manager Wave Digital Assets. “There has been a flight to quality, and the beneficiaries are those companies that were not affected by the crypto winter.”
Another way this move higher is different: The eye-popping 83% rally in Bitcoin this year has not been matched by newer coins. Ether, which far outperformed Bitcoin from 2020 and 2021, is up 71% this year. The Bloomberg Galaxy DeFi Index, which tracks the largest decentralized finance protocols, has only recovered about a tenth of last year’s 2,000-point drop.
“We can see a case of seller exhaustion combined with a renewed bullish narrative after the banking crisis, all mixed with generally low liquidity that has helped BTC’s price to the upside,” said Clara Medalie, director of research at market data provider Kaiko.
Despite all the gloom and uncertainty, progress in the development of the industry has continued. Ethereum this week completed what appears to be a successful upgrade to its network. The so-called Shanghai update, which allows investors to withdraw Ether coins they had unlocked in exchange for rewards as part of a “proof-of-stake” system to protect the network, could lure billions of dollars into Ether even after SEC Chairman Gary Gensler indicated that he believes the token should be regulated as a security. The price of Ether climbed back above $2,000 this week for the first time in six months. “I don’t think it’s the mania or goodwill that we saw at $30k or $40k, but there’s still, behind the scenes, quiet progress,” said Simon Taylor, chief strategy officer at Sardine, a fraud prevention startup whose clients include fintech and crypto companies .
The macro picture has also changed, potentially for the better. A year ago, the Federal Reserve and other central banks just began what would become a series of rate hikes that reversed years of easy money policy. With the end of that tightening cycle now closer at hand, conditions could once again be ripe for a crypto rally.
A big question is how enthusiastic traditional financial institutions will be going forward and whether they will be willing to step in to fill the roles once played by failed crypto startups like FTX. There are some indications that it may happen. Nasdaq Inc., for example, expects custody services for digital assets to be launched by the end of the second quarter.
In the long run, as much as $5 trillion could move into new forms of money, such as central bank digital currencies and stablecoins, by 2030, according to a Citigroup study. Another $5 trillion worth of traditional financial assets could be tokenized, helping drive mass adoption of blockchain technologies, according to the report.
Still, for Michael Purves, CEO of Tallbacken Capital Advisors, this time the “show me” threshold will be higher for institutional investors, considering the role crypto is meant to play in a portfolio is a moving target. Once touted as a hedge against inflation – like gold in the internet age – it instead tumbled amid the worst rise in consumer prices since the 1980s.
“Institutions began to take Bitcoin seriously after Bitcoin breached $20,000 in 2020 and played a key role in the subsequent rally to $69,000,” he wrote in a recent note to clients. “But this time, its long-term history of not offering portfolio diversification will weigh heavily on institutions, which likely have bigger headaches to worry about.”
–With help from Hannah Miller.
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