Crypto boom turns to meltdown as regulators spin in circles The Irish Times

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On February 13, a mysterious QR code bounced like the ball in the game Pong on nearly 37 million television screens in the United States and around the world that were connected to watch the Super Bowl, prompting smartphone users to scan and follow a link. Paid for by crypto-asset exchange Coinbase, it was one of several crypto-related spots to feature during what is arguably the first publicity event of the calendar year.

But less than four months after shelling out $14 million ($13.16 million) for the prime time slot, Coinbase, a totem of the broader sectors increasing legitimation after its initial public offering in April 2021, has announced plans to cut 18% of its global workforce in the face of a global crash in crypto asset prices. The company, which like many of the biggest players in the industry has its European headquarters in Dublin, has cut more than 1,000 jobs over the next month, including a number in Ireland.

This collapse would erase approximately $2 trillion from the overall crypto industry market capitalization since its peak in May 2021.

A sea of ​​red in crypto markets would also eventually overwhelm several high-profile victims, including algorithmic stablecoin Terra and exchange Sam Bankman-Frieds FTX, as disgruntled investors moved to withdraw their funds and reduce their losses.

Arrested in December on wire fraud charges for the alleged embezzlement of billions of dollars in customer deposits, the fall from grace of Bankman-Fried and FTX was the catalyst for further declines in values. Bitcoin, the crypto world’s flagship asset, is down more than 62% this year to $15,700, and 20% lower since early November when the outlines of the FTX scandal began to emerge.

After two years of soaring asset prices and a growing sense that the industry might be on the verge of joining the mainstream of finance, it wasn’t meant to be like this. In accounts filed in September, the Irish branch of Coinbases reported a more than 300% increase in after-tax profits in 2021 to 2.7 million on revenue of 64.5 million. At the foot of a pandemic-related crypto asset price boom, it and other exchanges like Binance reaped the rewards, charging investors, many of them amateurs, fees for all trades made through their platforms. .

But the fall in asset prices this year also led to a decline in crypto trading volumes that began in early summer 2021, which wiped out some of the estimated 22,000 coins and tokens in the market. Consequently, exchanges like Gemini are bracing for a much leaner set of numbers in 2022 as investor interest wanes, a phenomenon known in the industry as the crypto winter.

Inflation and its impact on the disposable income of the retail investors that crypto has been attracting lately, coupled with the general flight from risky assets, were also significant factors underlying the collapse. But the collapse of FTX towards the end of the year also makes this last crypto winter a particularly difficult, even existentially threatening one. Bloomberg reported earlier this month that average daily trading volumes halved between late October and early December as fears about contagion and the safety of customer deposits mounted.

I think it works so well for a while, [the correction] was predictable in the sense that people probably thought it couldn’t go on forever, says Rachel McCausland, associate attorney at the law firm Taylor Wessing, which has advised crypto companies and other disruptive technologies. But I don’t think anyone anticipated all of the other factors that then led to the reduction that we saw.

As 2022 draws to a close and winter has well and truly arrived, the assets and ecosystem that supports the crypto sector are in tatters. But it’s not all been bad news for the industry, at least from a regulatory standpoint.

This year, Gemini and Coinbase registered as virtual asset service providers (Vasps) with the Central Bank of Ireland, bringing the US-listed crypto exchange under its oversight for the purposes of anti-corruption regulations. – money laundering and criminal financing. European regulators have long taken a hands-off approach to crypto assets, fearing that the volatility seen in asset prices and trading volumes could harm consumers or even spill over to the traditional financial system if the asset class were dragged down. under official supervision and treated in the same way as other financial products.

Against this backdrop, the Central Bank continued to warn crypto investors of the dangers of unregulated assets. People should only invest their money in crypto if they are prepared to lose it all, Governor Gabriel Makhlouf said in November, although the fallout from this year’s crypto price crash on the financial system in the sense broad have remained limited.

With the European Union’s vaunted regulations on crypto asset markets (Mica) set to come into force in 2024, the question is how financial authorities can be seen to bring some semblance of law and order into the world. Wild West of crypto without effectively legitimizing a once fringe asset class that has displayed such volatility, impacted so many consumers and amateur investors, and suffered so much reputational damage in 2022.

The government is also keen to foster the development of the wider blockchain industry in Ireland, as outlined in its revised Ireland for Finance strategy in October. All of this creates a difficult regulatory and political balancing act.

It’s a difficult space to regulate, McCausland says. I think the difficulty comes from trying to strike a balance between innovation, investor protection and market integrity. Mica has been a long time coming and it’s a welcome development. But the difficulty with this industry is, as it develops and grows at such a rapid rate, it is almost impossible to keep up with developments at the regulatory level. But [Mica] will go far.

Not everyone agrees, however, and a number of MEPs have recently scorned Mica’s proposed scheme in the wake of the FTX collapse, wondering aloud whether it would prevent a similar disaster from occurring. occur in Europe. The EU Council and Parliament are still expected to ratify the package in the first quarter of 2023. Unless there is a delay, entities that fall within the scope of the regulation will have 12 to 18 months to apply for authorization of a EU member state to passport their services across the bloc. Given that many of the largest and best-known stock exchanges have their European base of operations in Dublin, Central Bank officials expect a busy year.

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