From Earth-Moon to FTX: Is that this the start of an finish for cryptocurrencies?

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“Fortune favors the daring.”

With these 4 phrases, cryptomania peaked when Matt Damon lent his A-list standing to endorse a industrial by Singapore-based trade

It was solely a little bit over a yr in the past when it seemed like cryptocurrencies had been heading for the stratosphere, besides perhaps not.

Following Damon’s phrases of knowledge, cryptocurrencies have suffered a valuable downfall. Bitcoin, the acquainted title of the cryptocurrency, has misplaced 70% in worth.

Because of this if Matt Damon satisfied you to purchase $1,000 value of bitcoin final November at $60,000 apiece, it might now be value lower than $300.

Is the endgame close to for a mysterious trade that appeared to have grown from nothing to a $3 trillion-dollar market at its peak?

A crypto pandemic

In 2018, Nobel Prize-winning economist Paul Krugman made the next prediction:

The worth of cryptocurrencies relies upon fully on self-fulfilling expectations, which signifies that complete collapse is an actual chance. If speculators had been to have a second of collective doubt, immediately fearing that bitcoins had been nugatory, effectively, bitcoins would grow to be nugatory.

Paul Krugmann

Oddly sufficient, Elon Musk brought about Dogecoin to lose worth after he joked about it on a TV present.

Since then, the collision of macroeconomic challenges and threat mismanagement within the crypto ecosystem has led to large losses and billions of {dollars} trapped in a defunct trade.

On reflection, the Earth-Moon crash was, in truth, a warning; simply as considered one of a sequence of unrelated occasions seen in a Hollywood movie that turned out to be an indication of impending catastrophe.

With cryptocurrency firms so depending on mutual lending, the collapse of the Terra blockchain has had a number of knock-on results. Notably, it led to the chapter of Three Arrows Capital (3AC), at one level probably the most important hedge fund in cryptocurrencies.

However between the bailouts and liquidity crises, there was nonetheless a common sense of speculative optimism inside the cryptocurrency neighborhood.

SBF is a sorry tweet
Sam Bankman-Fried could have admitted he was flawed, however it’s too little, too late / Picture Credit score: SBF@Twitter

This was the case till the implosion of FTX. When a bailout take care of Binance fell by means of, the third-largest cryptocurrency trade turned the newest sufferer of the cryptocurrency contagion.

It is sensational information even for individuals with zero curiosity in cryptocurrencies. Primarily, how did $32 billion disappear in a single day, with our Temasek sovereign wealth fund turning from an investor right into a creditor?

However for crypto fans, the autumn of FTX is a catastrophic blow, elevating fears {that a} crypto sell-off may result in extra firms going bankrupt.

2022 was the annus horribilis of cryptocurrencies. And Sam Bankman-Fried – as soon as the golden boy of cryptocurrencies – seems to be nothing greater than a monetary charlatan. And sadly, his private failures have threatened to deliver down a whole trade that’s nonetheless struggling to get again on its ft.

Regulating the wild west of cryptocurrencies

Contemplating how cryptocurrencies had been conceived as a peer-to-peer digital funds system that eradicated the necessity for monetary intermediaries, regulating an trade with roots in decentralization shall be tough.

Nonetheless, with collapsing firms threatening native economies, governments around the globe are dashing to develop a regulatory framework to tame this cowboy trade.

Krugman agrees that current occasions have clarified the necessity to regulate cryptocurrencies, but in addition warns that cryptocurrency exchanges may grow to be out of date if regulators crack down on the trade.

The trade couldn’t survive regulation as a result of they [crypto exchanges] it might not be allowed to supply paltry returns to draw prospects.

Paul Krugmann

Following the occasions of 2022, the Financial Authority of Singapore (MAS) has proposed measures to scale back the dangers to customers from buying and selling cryptocurrencies.

The CEO of MAS, Ravi Menon
MAS CEO Ravi Menon says Singapore is attempting to make it more durable for the general public to purchase cryptocurrencies, however will not ban such buying and selling / Picture credit score: Yahoo Finance

It’s too early to see if the proposals will work. In any case, blockchain and cryptocurrencies are comparatively new and there’s no precedent for governments to fall again on.

However one factor is for certain: and not using a sustainable cryptocurrency regulatory course of, cryptocurrencies are unlikely to understand their full potential to democratize finance. Worse, it’ll grow to be a predatory dumping floor for criminals who prey on the susceptible in get-rich-quick Ponzi schemes.

Not fairly the tip

The cryptocurrency trade has had a protracted historical past of bankruptcies, scandals and crime. However 2022, as a watershed yr, has additional perpetuated that picture.

For now, cryptocurrencies discover themselves trapped in an info vacuum.

“The market is in a wait-and-see mode to see if there are different entities that will fall attributable to FTX publicity,” Vijay Ayyar, vp of enterprise and worldwide improvement at cryptocurrency trade Luno, instructed CNBC. .

Nonetheless, market fluctuations are a part of each funding journey. And regardless of the volatility of cryptocurrencies, there’s nonetheless a fascination surrounding them.

First, the extremely speculative nature of cryptocurrencies is precisely what drives individuals in direction of them. It is just like playing, and reasonably than counting on strong funding ideas, specialists hope for a payday with out worrying about what goes on behind the scenes.

irene zhao NFT
Irene Zhao, a Singapore-based cryptocurrency influencer, launched an NFT assortment and made thousands and thousands / Picture credit score: CoinChapter

Secondly, non-fungible tokens (NFTs) are an rising cryptographic expertise that’s gaining large traction. From vogue homes to celebrities, distinctive digital belongings at the moment are being bought through blockchain providers, the long run spine of the web.

Lastly, Singapore needs to assist the event of stablecoins as a reputable medium of trade within the digital asset ecosystem. It has already granted stablecoin issuers Circle and Paxos approval to function within the area, with others anticipated to land on our shores sooner or later.

Removed from being lifeless, cryptocurrency is just evolving. It might be a crypto winter, however as everyone knows, spring is simply across the nook.

Featured Picture Credit score: Bitcoinist