Cryptocurrency in Crisis?

Syed Rahman, cryptocurrency specialist at business crime solicitors Rahman Ravelli, assesses the difficulties the sector is going through.

There is no denying that the cryptocurrency industry has been enduring a stormy period. The question now is whether that storm will pass – and what lasting damage it will leave behind.

An estimated $900 billion has been wiped off the value of the Bitcoin market since last year’s peak. A matter of days ago, the price of Bitcoin dropped below the $20,000 mark for the time since November 2020 ,  which is a sizeable fall from its November 2021 peak of $68,999.

The fact that Ethereum, which is second only to Bitcoin in popularity, has lost 78% of its value in the same period is a clear indicator that the situation is not unique to Bitcoin.

There can be no doubt that the cryptocurrency sector is now going through trying times. There have always been doom mongers and naysayers when it comes to cryptocurrency. Current events will give added fuel to their arguments that crypto is a high-risk, unregulated flash in the pan. But to jump to such a conclusion is to ignore some significant points.

There can be no denying that investors are currently less enamoured with crypto than they have been in recent years. But this has a lot to do with the rate at which inflation continues to spiral and the tightening monetary policy – factors that were always likely to make cryptocurrency less attractive to investors – rather than the notion of crypto itself.

While the turmoil in the market is creating headline-grabbing price drops for the “big boys’’ of the crypto market, such as Bitcoin and Ethereum, its effect is being felt elsewhere. The market volatility is almost certain to weed out many of the fraudulent and weak tokens and stablecoins. Difficult economic times have a habit of both shining a light on fraud and making it hard for the less strong to survive. This will surely be reflected in the crypto world in the near future. But it would be in any other area of finance.

Crypto’s difficulties are being exacerbated by other, non-economic factors.  There are companies, such as crypto lender Celsius, that are at major risk of liquidation due to the de-fi hacks it suffered  in recent months. Celsius put out a statement not so long ago, explaining that due to market conditions, it would be pausing all withdrawals, swaps and transfers between accounts. It needs to raise liquidity to deal with its customers otherwise its future will be uncertain.

When you throw into the mix the tensions that have developed due to the Terras UST stablecoin collapse (and the resulting US Securities and Exchange Commission investigation) the picture that emerges of the cryptocurrency sector is one of uncertainty. An area that appeared  to its investors and its many cheerleaders to be the last word in cutting edge profit making now appears to be facing a challenge to maintain its credibility in certain quarters.

Those who never believed in either the value or importance of cryptocurrency will point to recent events as proof that they were right all along. But to accept such a view would be a mistake. Cryptocurrency has never been without its risks or its shortcomings. At present they are, quite rightly, the subject of scrutiny and analysis.

But that does not mean there will be no light at the end of the tunnel for the crypto industry.