The bankruptcy of the FTX exchange could help the cryptocurrency industry. But how?
Crypto-zima is not over yet, but that does not mean that big business is not investing money in the digital asset industry. On the contrary, even recent negative news can provide an additional incentive to invest in crypto. That is the view of Jez Mohidin, co-founder and CEO of Asian giant Nomura Holdings’ recently launched digital asset division called Laser Digital. We tell you more about the expert’s viewpoint.
Note that there are few new developments in FTX founder Sam Bankman-Fried’s case so far. He pleaded not guilty to all charges last week, resulting in a trial scheduled for 2 October 2023.
Ex-CEO of FTX Sam Bankman-Fried
It was also revealed late last week that Bankman-Fried does not want to return hundreds of millions of dollars worth of shares in Robinhood, which were demanded from him the day before by representatives of the BlockFi strip platform.
Sam said he needed the money to pay for legal defence. Otherwise, Bankman-Fried “could face irreparable harm”. What the judge will decide about this is unknown.
Who buys cryptocurrencies?
Mohidin believes that the collapse of the FTX exchange last November could encourage other players to enter the market who will keep better contact with regulators and adhere to transparency. Here is a relevant rejoinder from an analyst quoted by Cointelegraph.
More traditional players who are in a position to help regulate the sector are entering the market. These are the companies that can come to a consensus with regulators and understand the importance of customer engagement, stability and execution of their mission.
In other words, the serious scale of the activities of these or those companies implies that there is also the attention of regulators who control what is going on. Accordingly, the arrival of major players in the coin industry could accelerate the process of establishing a regulatory framework for the digital asset sector, which would be an additional reason for the influx of new investors.
Ex-CEO of bankrupt FTX Sam Bankman-Fried
Laser Digital is also actively investing in crypto projects. Its portfolio includes little-known crypto exchange Bullish, decentralised protocol Orderly Network, custodial platform Komainu, as well as other startups working on decentralised finance solutions. Mohidin confirmed that his unit plans to invest in around twenty projects in 2023.
The executive also commented on the major challenges in the crypto-sphere that are hindering the inflow of large capital. He continues.
The lack of adequate infrastructure solutions has created significant challenges for crypto investors – we want to solve this problem.
At Laser Digital, we aim to achieve a high rate of infrastructure development for institutional investors. These could be platforms that can be trusted with large capital with high security guarantees. As a reminder, it is the fear of hacking and fraud that is one of the reasons institutional investors are reluctant to enter crypto.
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That said, according to Cointelegraph sources, 2023 will be full of new challenges for crypto investors. It’s all about a bad macroeconomic environment. The US stock market began to show the first signs of an impending prolonged decline at the beginning of last year, and the situation has only worsened over the past months due to the US Federal Reserve’s constant increase in the benchmark lending rate.
Bitcoin’s price movement amid rising benchmark lending rates, macroeconomic uncertainty and Terra’s collapse
The price of Bitcoin, meanwhile, fell 50 per cent from its all-time high to $33,100 before the collapse of cryptoproject Terra. The first significant drop in the cryptocurrency’s value was precisely due to growing uncertainty in the market due to rumours of a possible rate hike in November 2021. By January 2022, the situation had become critical – it was clear that a prolonged market decline could lie ahead.
Back to the beginning of this year. Uncertainty is nowhere to be found, and future predictions can also be built from the dot-com bubble that burst on the US stock market in the late 1990s. By the early 2000s, the bloated Nasdaq Composite index, which represents technology companies, went down sharply when the Fed started raising interest rates in 1999 and 2000. The Nasdaq fell 77 per cent from its peak, meaning analysts decided to link this event to what is happening today and to send a message that any positivity in the market could supposedly disappear.
Note that this prediction does not have to come true, in addition other experts would definitely disagree with it. For example, ShapeShift platform head Eric Voorhees made it clear the day before that he expects the start of the next bullrun in at least six months. And according to his version, Bitcoin could well return to the $40,000 line if no new disasters hit the market. Read more of Voorhees' viewpoint here.
The dotcom bubble on the Nasdaq chart
The crypto situation could follow the same scenario. US Federal Reserve Chairman Jerome Powell is adamant about curbing inflation, which means that rates will continue to rise for some time to come. Earlier Federal Reserve officials made it clear that investors should definitely not expect a rate cut in 2023.
During the dot-com bubble, the Fed stopped raising rates in May 2000, but the decline in the Nasdaq continued for the next two years. Thus, even if the US Fed does stop raising rates this year, the crypto-zima could well drag on. However, this is just one version of possible events that does not have to come true.
We believe that the collapse of FTX will really benefit the cryptocurrency industry. Not only has it reduced the niche by one major toxic ecosystem. Exchanges are also now moving towards transparency and looking to limit any activity that could harm the stability of trading platforms. Accordingly, in theory, the niche could indeed become more attractive to investors.
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