The cryptocurrency market has been dealt a blow with the recent FTX scandal, but the potential for growth and resilience remains. Despite the setback, the future of cryptocurrency, and of course blockchain, is still bright, fueled by a supportive community, impressive performance, new platforms, favorable regulations, and real-world adoption.
While the FTX debacle certainly impacted the industry, it is really more an issue of fraud, malfeasance or incompetence rather than an indictment of cryptocurrency and the attendant opportunities. Writing off cryptocurrency and the myriad opportunities associated with it, would be a mistake. While the faces of the industry may change (no longer Sam Bankman-Fried) we are likely to see a return of those whose focus has been steadfast on use cases and applications.
We spoke to MobileCoin Founder Joshua Goldbard, and he was clear in his view on the future of cryptocurrency. “From the ashes of FTX rises a phoenix in the form of the neo industrial revolution. AI and cryptocurrency are two of the biggest monster trends of the coming decade. In particular, the cryptocurrency industry is maturing, learning how to fit into society and participate in the public-private partnership. 2023 is going to be a fireworks show.”
Cryptocurrency is driven by a well-established community of developers and investors who have the vision to see that Fintech, and a disintermediated payment structure, is the future of global currencies. At Davos this past month, there was still a bullish outlook, with countless speakers discussing that while perhaps more, or better, regulation may be needed, others stated that the reality is that more maturation is all that is called for.
In the UK, the House of Lords announced: “The Financial Services and Markets Bill seeks to make wide-ranging changes to the regulation of financial services in the UK. It would implement the outcomes of the Future Regulatory Framework review and establish a regime to regulate stablecoins, a type of crypto asset, and protect access to cash.”
The Bill is being finalized in the near future – a sure indicator of an expectation of continued usage and growth.
In the U.S. Congress, a new subcommittee on Digital Assets, Financial Technology and Inclusion was established to develop rules, policies and best practices, tasked with “Providing clear rules of the road among federal regulators for the digital asset ecosystem; Developing policies that promote financial technology to reach underserved communities; Identifying best practices and policies that continue to strengthen diversity and inclusion in the digital asset ecosystem.” (House Financial Services Committee Press Release January 12, 2023.)
Certainly not indicative of the death knell of crypto-assets, but rather, taking a look to the future. Perhaps the FTX collapse will allow for greater focus on responsible regulation and not just on enforcement.
Houses, Cars, Bitcoin and Bubbles
The nation has seen economic and industry bubbles burst, most recently housing, and is currently observing a market correction in several major markets. The same held true with automobiles during the supply-chain crisis of ’21 and ’22. Those prices are now also stabilizing.
It is no different with cryptocurrency. Bitcoin was valued at under $10,000 in 2019 and while the bubble inflated enormously until 2022, its current value has stabilized at around $23,000. The same holds true for Ethereum, which started at under $100 and is currently priced close to $2,000 in the same time frame. There are few stocks or investments of any kind, that can boast those kinds of performances.
This was largely due to external factors such as the acceptance of cryptocurrency by major companies like Microsoft and Tesla, as well as the acceptance of cryptocurrency by multiple world governments and when the Comptroller of the Currency, Brian Brooks rendered a historic decision in July 2021 to make it legal for banks to use secured tokens. That move opened the door for banks to offer cryptocurrency services to their customers, increasing accessibility and driving growth in the market.
None of this has been reversed.
Visa, Mastercard, and American Express support the ability to purchase crypto currencies on their credit cards; investment manager Fidelity is adding crypto access to its retirement accounts; Goldman Sachs has stated that it plans to buy up bargain crypto firms and JPMorgan Chase has registered a trademark for its own crypto wallet. Crypto is anything but irrelevant.
Visa CEO Alfred Kelly Jr. summarized it well at the recent annual meeting: “It’s very early days, but we continue to believe that stable coins and central bank digital currencies have the potential to play a meaningful role in the payments space, and we have a number of initiatives underway.”
The Responsible Financial Innovation Act
Ironically, it was Sam Bankman-Fried, CEO of FTX, was one of the loudest proponents of the need for stronger regulation of cryptocurrencies and platforms. After the fall, his voice has been heard.
Senator Cynthia Lummis spoke about the collapse and pointed out that she and Senator Gillibrand had introduced a bill, The Responsible Financial Innovation Act, that may now get even more attention. She noted that in light of the debacle, it is time for even more focus on regulation and the bill’s authors seek to integrate lessons learned into their bill, removing any language related to unintended consequences. There will certainly be increased focus on regulations, however more than just increased regulatory clarity is needed.
As has become all too obvious, investors must also perform better due diligence and not just rely on the lemming phenomenon when exploring and supporting digital assets. All of this focus will lead to further growth of useful cryptocurrencies, albeit some lacking a genuine purpose will go by the wayside.
The Positives Most People Don’t Know
Cryptocurrency has the potential to change the financial landscape by serving the unbanked and underbanked populations around the world. While traditional banks require minimum deposits and balances that those living below the poverty line can’t afford, crypto can offer alternatives that will enable such individuals to open accounts they might otherwise not have had. By offering access to financial services, cryptocurrency has the power to reduce poverty and the crimes associated with carrying cash, as well as drive economic growth.
Lack of dependence upon a government is another of the key strengths of cryptocurrency. In today’s political climate, there are several vocal politicians who have made clear their willingness to refuse to raise the debt ceiling and, as a result, crash markets both domestically and internationally.
We have also seen numerous countries devalue their traditional currencies during times of confrontation. While the U.S. Dollar relies on the “Full Faith and Credit” in government to retain its value, cryptocurrency can rely on anything from the indelible series of transactions, to gold, LIBOR or the S&P 500. Combine that with forthcoming regulation and crypto can actually prove more stable than the dollar.
It Was Never Just Bitcoin or FTX
Five short years ago, the average person’s knowledge of cryptocurrency could be summarized with the following question
“Oh, you mean Bitcoin?”
Obviously, there were a multitude of coins and coin types (such as the more stable secured tokens that were authorized for use by U.S. Banks). The same holds true for platforms. While the spotlight is on FTX, there have been multiple platforms that were larger and traded in higher volume, long before FTX arrived on the scene. For years, Binance, Coinbase and Kraken have offered new investment opportunities in the crypto-market. These players are contributing to the overall growth and development of the cryptocurrency space and allow people to do everything from buy virtual assets (NFTs) using Etherium to simply investing in cryptocurrency, itself. Perhaps the FTX debacle has a silver lining- the increased focus on cryptocurrencies and the attendant scrutiny and on solid projects and use cases.
Cryptocurrencies will continue to exist and be used for transactions, even though there have been some complications recently. There are a number of reasons for this.
First, cryptocurrencies are decentralized and not subject to government control or manipulation. Second, cryptocurrencies are encrypted and secure, making them immune to fraud. Finally, many believe that cryptocurrencies have potential use cases that go beyond simply transferring money. Cryptocurrencies can be used for payment for goods and services, investment, and even taxation. So, even though there have been some issues recently, it seems clear that cryptocurrencies will continue to be used and accepted by the public.
The need for better due diligence and understanding of cryptocurrency will only ensure that the demand for experts and experienced professionals increases. Many experts believe that cryptocurrency will become more widespread and accepted as a form of payment. Regardless of the future status of cryptocurrency, it is likely that it will continue to evolve and grow in popularity.
The FTX scandal may have been a temporary setback, but it has not diminished the future potential of cryptocurrency. The overall strong performance, emerging platforms, favorable regulations, and growing real-world adoption will prove that cryptocurrency is here to stay.
