Crypto crash portends the future of the industry

The cryptocurrency sector has yet to pull the proverbial magic rabbit from the top hat.

Audiences, after buying tickets to the show, now realize they may walk away empty-handed as their hard-earned money vanishes.

This, as over a decade has passed since digital assets first entered the public consciousness with far-reaching claims of one day revolutionizing the global financial system.

Instead, with each passing day, the premise and the promise for the sector have become successive battered of bad actors and backdoor platformswhich makes the future more uncertain than ever.

On Thursday (March 2), the British banks HSBC and Nationwide Construction Association announced that it was banning cryptocurrency purchases using credit cards for its retail customers and tightening restrictions on debit card purchases of crypto to a daily limit of $6,000.

The UK Financial Conduct Authority (FCA) has labeled crypto as high risk for several years, even threatening crypto managers with prison if they break certain rules, such as reported by PYMNTS in February.

A fascinating innovation, but no rescue of the global financial system

US regulators, including the Federal Reserve, have told financial institutions to be wary of “potential increased liquidity risk” presented by certain funding sources from crypto-related entities, while The Security and Exchange Commission (SEC) is ongoing full court press on the digital asset industry by telling investment advisors about it wary of cryptocurrency trading and lending platforms, stressing that they cannot be relied upon as qualified custodians.

“To be clear: just because a crypto trading platform claims to be a qualified custodian does not mean that it is. When these platforms fail – which we have seen time and time again – investors’ assets have often become the property of the failed company, and leaving investors in line at the bankruptcy court, says SEC Chairman Gary Gensler so Thursday (March 2).

ONE paper published On February 23, the International Monetary Fund (IMF) listed as chief among its nine-point action plan for how countries should deal with crypto, the call not to make crypto legal tender and to keep it separate from the traditional banking sector.

While the IMF does not have the power to stop countries, such as El Salvadorfrom making crypto legal tender, it has the option to choose to refuse to lend to them if they do.

As reported by PYMNTS, Agustín Carstensmanaging director of the Bank for International Settlements (BIS), said on February 22 that crypto’s underlying technology does not pave the way for “trusted money”.

Even the inventor of the World Wide Web, Tim Berners-Lee, has recently gone on record states that crypto is “only speculative.”

As PYMNTS Manager Karen Webster wrote back in 2017“bitcoin was an interesting, even fascinating, innovation, but not the salvation of our global financial system – not even close.”

Her prescient piece adds: “The conversations we’re having now about bitcoin and cryptocurrencies seem to have lost sight of the problem that needs to be solved when we look at the evolution of global financial services and the networks that power them. No one would argue that things could be more efficiently – and that the opportunity to digitize, secure, smarten and settle digital assets in real-time or near real-time is worth exploring – and has huge potential upside… But it requires bitcoin [or one of the many thousand cryptocurrencies] to do it? Only if you want to build something that operates completely outside of the current global financial services ecosystem…begs the question of the relevance of cryptocurrency beyond using it to do things that cannot legally be done with fiat currency.

It took five years and a rollercoaster ride rise and fall, but the rest of the world now seems to be wiser.

Cryptobanks worry about going belly up

To protect both themselves and their customers, banking institutions are increasingly placing crypto-specific restrictions on their services.

In the UK, institutions, including Banco Santander SA and Natwest Group Plc has already banned crypto and refused to serve business customers who accept digital assets as payment.

In the US, as before covered of PYMNTS, banks like Silvergate Capital that leaned into the crypto boom and made catering to the industry a core part of their business are now facing the realities of a challenging new regulatory, retail and risk landscape that could affect the viability of the “going concern”.

After all, when the Emperor has no clothes, being seen in public with them becomes an increasing reputational risk.

Yet as Chainalysis Chief Product Officer Pratima Arora tells PYMNTS“It’s times like these – bear markets – when changes in crypto technology happen.”