Crypto collapse ‘necessary evil’ on the way to maturity – KPMG Canada

(Kitco News) The crypto crash over the summer was the market correcting itself after a lot of leverage mixed with bad actors had to be deepened, KPMG in Canada director and co-head of crypto assets and blockchain Kunal Bhasin said.

The Terra Luna collapse and contagion risk that led to the crypto selloff was “a necessary evil for the industry because there were a lot of bad actors,” Bhasin told Kitco News on the sidelines of the Blockchain Futurist Conference in Toronto. “When we say the market corrects itself, that’s exactly what happened.”

But when it comes out of this, there’s going to be a lot more maturity in the space,” Bhasin said. “We saw the level of maturity that the space got after the 2018 cycle and the infrastructure that was built to meet all the challenges. The maturity of the crypto repository infrastructure, crypto wallets and how we interact with it. We’ve seen tremendous improvement in the last three years. And it’s what I expect to come out of this.”

Risk management frameworks are likely to get an update to address the risks that were overlooked before, he added.

KPMG Canada is a professional services firm that added Bitcoin and Ethereum to its corporate coffers at the beginning of the year. And the firm continues to hold this award, Bhasin said.

“We added Bitcoin and Ether to our treasury because we wanted to be part of the community. We wanted to show the crypto community that we have skin in the game,” Bhasin explained. “Our leadership believes in the technology and all the transformative ways it can be used in society. KPMG is not traditionally in the business of investing in assets. This is probably the first time something like this would have happened.”

In late February, KPMG Canada also acquired digital art from the highly acclaimed World of Women (WoW) NFT collection.

“The reason we bought WoW NFT is because we need a lot more women in crypto and women in tech in general. I feel like the crypto industry could use a lot of the majority and sensibility that comes with a lot more women in the space and how they could contribute,” Bhasin said.

Regulation and institutional adoption

Regulation has taken center stage this summer as US regulators step up oversight of the crypto industry following the price collapse.

But according to Bhasin, countries have a lot to learn from each other when setting regulations, especially since crypto is a global system.

“There are different things that US and Canadian regulators can learn from each other. In the US, there is no spot crypto ETF. In Canada, we’ve had a spot ETF for a couple of years. That’s one thing the US regulators could take away the Canadian regulators,” he said.

Overall, regulations are a good thing for the industry – they offer protection to consumers and investors. However, international cooperation will be important because siled regulations will be detrimental to the system, Bhasin added.

“The more collaboration we have between regulators across countries, the more benchmarking each of the countries’ regulators can do to make sure they’re looking at what might work well and be good for the overall ecosystem,” he said.

Bhasin also believes that the traditional Howey test may not be the right one for the crypto space, especially when it comes to Bitcoin and Ethereum. “We need a new framework to assess these assets and not try to retrofit a test that was adopted when digital assets weren’t even a thing,” he said.

The Howey test, which refers to the US Supreme Court case to determine whether a transaction constitutes an “investment contract” and should therefore be considered a security, is often used for crypto. Under the test, an investment contract is an investment of money by entrepreneurs in a joint enterprise with an expectation of profit from the efforts of others.

Institutional involvement in crypto continues to grow, and the price drop may encourage some new players to get involved.

“The institutions that have been looking to enter the area have done due diligence and research for several months or years. For many, the decision would not depend on where the market is. But for some, this is an opportunity because of where the prices are. If they didn’t want to get in when Bitcoin was at $60,000, the current $20,000-$24,000 range could be a good time for them to get in,” according to Bhasin.

Going forward, KPMG is keeping a close eye on the Ethereum merger. “At KPMG we are all about being sustainable and ESG compliant. For us it is crucial to keep an eye on the merger because it will go from proof-of-state to proof-of-work and reduce emissions by 99% “, Bhasin said.

To learn more about the merger scheduled for September 15, click here.