Bitcoin surpassed $30,000. Is another crypto boom on the way?

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(Bloomberg) – When Bitcoin plunged from around $30,000 to under $20,000 in just over a week last year, Three Arrows Capital co-founder Su Zhu described the drop as the nail in the coffin of his hedge fund.

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Fast forward to today, and the biggest cryptocurrency just retraced that path from $20,000 to $30,000 last month, but the industry is a shadow of what it was last time around. that the token has passed this stage. That’s because several other coffins have been hammered into the domino wave of bankruptcies that followed the collapse of Three Arrows: Voyager Digital, Celsius, FTX, Blockfi, Genesis Global and other once high-flying startups.

It’s clear that while the mood has improved from last year’s doomsday mood, Bitcoin’s promising rebound alone won’t be enough to undo all the damage wrought by the scandal-filled downturn. Last year.

Read more: All the ways crypto broke in 2022

The sentiment here doesn’t seem like the past few weeks mean we can pretend the past 10 months never happened, said Oliver Linch, the managing director of trading platform Bittrex Global, speaking on the sidelines of a crypto conference in Paris. But there is certainly a sense that this may signal that a line can be drawn under these scandals and that we can get back to valuing and valuing crypto without all the noise of rumors and wrongdoing.

This alleged wrongdoing sparked a barrage of regulatory reviews and high-profile lawsuits in the United States.

Among the most prominent: FTXs Sam Bankman-Fried awaits trial for fraud; Do Kwon, co-founder of the Terra blockchain, faces lawsuits for his role in the collapse of these projects; Binance and its CEO Changpeng CZ Zhao have been sued by the Commodity Futures Trading Commission for various alleged violations; and Coinbase Global Inc. has been notified that the Securities and Exchange Commission intends to sue the company. Binance and Coinbase have denied any wrongdoing; Bankman-Fried pleaded not guilty.

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Then there is the recent bankruptcy of crypto-friendly banks Silvergate Capital Corp., Signature Bank and Silicon Valley Bank. Although often cited as a bullish catalyst for Bitcoin, as they revived its origin story as an alternative to unreliable banks, the downfall of these lenders also severed key ties to the US financial system, helping to make the once bright future of the crypto industry. still uncertain.

Many retail investors burned by last year’s price crash seem to be licking their wounds rather than taking new risks, as the amount of money involved in decentralized finance projects remains subdued. While the total value of coins locked in DeFi projects has increased by more than 25% since early January, to around $50 billion, it is still only a fraction of the $180 billion peak reached in December 2021. according to the DeFiLlama website.

At the same time, thousands of jobs have been lost across the industry and hiring has not resumed. In a sign that the supply of talent still exceeds demand, blockchain project Concordium has received more than 350 applications for a few recent job openings, said its co-founder and chairman Lars Seier Christensen. “The space is maturing a bit, realizing that the money tree available a few years ago has withered a bit,” he said.

Investments by venture capitalists have slowed considerably. Private funding for crypto startups worldwide fell to $2.4 billion in the first quarter, down 80% from its all-time high of $12.3 billion during the same period, according to PitchBook. period last year.

Much of the industry is still in wait-and-see mode, said Matteo Dante Perruccio, international chairman of crypto wealth manager Wave Digital Assets. There has been a flight to quality and the beneficiaries are companies that have not been affected by the crypto winter.

Another way this upward move is different: Bitcoin’s mind-boggling 83% rally this year hasn’t been matched by newer coins. Ether, which has largely outperformed Bitcoin in 2020 and 2021, is up 71% this year. The Bloomberg Galaxy DeFi Index which tracks the biggest decentralized finance protocols only recoupled about a tenth of last year’s 2,000 point decline.

We could see a case of seller burnout combined with a new bullish narrative post-banking crisis, all mixed with generally low liquidity that has helped the BTC price higher, said Clara Medalie, chief research officer. at market data provider Kaiko.

Despite all the gloom and uncertainty, progress in the evolution of the industry has continued. Ethereum completed what appears to be a successful upgrade to its network this week. So-called Shanghai update, which allows investors to withdraw Ether coins they had locked in exchange for rewards as part of a proof-of-stake system to protect the network, could attract billions of dollars in Ether even after SEC Chairman Gary Gensler indicated that he believes the token should be regulated as a security. Ether price moved back above $2,000 this week for the first time in six months. “I don’t think there’s the mania or the excitement that we saw at $30,000 or $40,000, but there is still, behind the scenes, quiet progress,” said Simon Taylor, head of strategy at Sardine, a fraud prevention startup whose clients include fintech and crypto companies.

The macro image has also changed, potentially for the better. A year ago, the Federal Reserve and other central banks were just beginning what would become a series of interest rate hikes that reversed a years-long policy of easy money. With the end of this tightening cycle now near, conditions could once again be ripe for a crypto boost.

A big question is how keen traditional financial institutions will be and whether they will be willing to step in to fill the roles once played by failing crypto startups like FTX. There are indications that could occur. Nasdaq Inc., for example, expects its digital asset custody services to launch by the end of the second quarter.

In the long term, up to $5 trillion could shift to new forms of money, such as digital currencies and central bank stablecoins, by 2030, according to research by Citigroup. According to the report, an additional $5 trillion in traditional financial assets could be tokenized, helping to drive mass adoption of blockchain technologies.

Even so, for Michael Purves, Managing Director of Tallbacken Capital Advisors, the demo threshold will be higher this time around for institutional investors, given that the role crypto is meant to play in a portfolio is a moving target. Once touted as an inflation hedge like internet-era gold, it instead fell during the worst consumer price spike since the 1980s.

Institutions started taking Bitcoin seriously after Bitcoin broke $20,000 in 2020 and played a key role in the subsequent rally to $69,000, he wrote in a recent note to clients. However, this time around, its longer-term history of not providing portfolio diversification will weigh heavily on institutions, which likely have bigger headaches to worry about.

–With help from Hannah Miller.

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