Can cryptocurrency markets really go bad? Yes, say Industry Experts

  • The past year has been brutal for the cryptocurrency markets with the fall of FTX, Celsius and Three Arrows Capital.
  • “Centralized lending and earnings products are going the way of the dodo,” said one executive.
  • Experts have shared their predictions for 2023 and how things could get worse before they get better.

Cryptocurrency markets took a hit in 2022 with the collapse of industry giants such as digital asset exchange FTX, algorithmic stablecoin TerraUSD, and now-defunct hedge fund Three Arrows Capital.

According to Messari’s data, the industry’s market cap is down more than 65% from its November 2021 record high, while bitcoin and ethereum are down more than 60% year-to-date.

Many ask themselves: can it get worse?

For context, the sector saw an 18-month bear market from 2018 to 2019, dubbed the “crypto winter.”

“It takes a long time for the contagion to fully occur, and we expect that some dominoes will still fall in 2023. However, we are already seeing a renewed commitment to building better, more reliable solutions in the space, and we expect this trend to continue. 2023- could be the theme of the year,” Phil Wirtjes, head of strategy at digital asset trading platform Enclave Markets, told Insider.

What’s the next shoe to drop this year?

All eyes are on it Digital Currency Group, a conglomerate that oversees heavyweights such as asset manager Grayscale and crypto broker Genesis.

Genesis came under fire after its lending arm suspended withdrawals in November. The firm was exposed to the failed exchange of Sam Bankman-Fried 175 million dollars FTX is stuck on the trading platform. Genesis says that after FTX went bankrupt, customers rushed to withdraw their funds, causing a severe liquidity crisis.

“The impending collapse of Genesis has been a concern for some time, as most of its assets are owned by US hedge funds, and the market has already adjusted to this news,” said Andrey Grachev, Managing Partner of the digital asset market maker. DWF Labs told Insider.

He added: “While the collapse may not have had a major impact on the industry as a whole, it does mark the end of an era as DCG, long feared to be the last domino to fall, will finally be defeated.”

Genesis laid off 30% of its workforce on Thursday, a company spokesperson told Insider, with the sales and business development teams most affected by the layoffs. Gemini, the cryptocurrency exchange that loaned Genesis for its interest-bearing product, is seeking to recoup $900 million in customer money from the embattled firm.

There could be there could be huge losses and liquidations in the industry If a large firm like Genesis or its parent company DCG files for bankruptcy.

“Lawsuits and bankruptcies will continue for years. Even today, coins from Mt.Gox’s 2014 bankruptcy are waiting to be distributed,” Tegan Klein, CBO and co-founder of software developer Edge & Node, told Insider. “The biggest unresolved situation right now is the situation with DCG, Genesis and Grayscale, and we’re waiting to see what happens there.”

Can be caused by FTX infection more bankruptcies and lawsuits this year as well.

Fedor Muegge, a partner at blockchain venture firm 369 Capital, told Insider that the industry has yet to fully see FTX or Terra and Luna explode.

“We haven’t even begun to really unravel FTX and its network of companies. Further work on this and investigations into other recent cases like the Terra-Case could lead to more lawsuits,” Muegge said.

He added: “Furthermore, during this prolonged bear market, many smaller players will run out of liquidity, leading to more bankruptcies.”

“It is possible with major market shocks, the cryptocurrency may go lower than Luna/UST/3AC and FTX times, to $12-13k Bitcoin and $8-900 Ether,” said Youwei Yang, Chief Economist of BTCM cryptocurrency company. Citing a potentially tough macro situation, a restrictive regulatory environment or a DCG bankruptcy, Insider.

wait a withdrawal of double-digit interest rate offers from centralized firms, because if there’s one thing we’ve learned from cryptocurrency in 2022, it’s that if it sounds too good to be true, it probably is.

Centralized lender Celsius offered customers an annual interest rate of around 20% on deposits. The firm later filed for bankruptcy in July following a liquidity crisis.

“Centralized lending and leveraged products are going the way of the dodo,” Tegan Kline, CBO and co-founder of software developer Edge & Node, told Insider. “You can still make attractive returns, especially in DeFi, using web3 protocols and dapps.”

As a result, investors can turn to decentralized finance or DeFi protocols like Aave and Compound or decentralized exchanges like Uniswap.

“There are a lot of protocols coming out of the crypto lending crisis that offer productivity from stake to security of the network, like ethereum or DeFi protocols,” Kline added.

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