Hopes that the crypto winter will soon thaw are looking increasingly remote, chief executives tell Financial News, as many prepare for the bear market to stretch deep into 2023.
Jean-Marie Mognetti, CEO of CoinShares, said he expects the industry to be “suffering for at least 18 months.”
However, he added that small improvements may begin to emerge by August next year. “Crypto is not for the faint hearted,” he said.
Crypto prices have been in the doldrums since the collapse of stablecoin terraUSD and its associated cryptocurrency luna sparked a wider market crash in earlier this year.
They took a further hit after data showed US inflation picking up faster than expected in September, dashing hopes that the Federal Reserve will slow the speed of its planned rate rises.
Bitcoin tumbled more than 4% on 13 October to below $18,400, nearing its yearly low and representing a 61% fall year-to-date. The world’s largest cryptocurrency by market cap has hovered between $19,000 and $20,000 since the beginning of September.
Analysts say crypto values – which have become more correlated with the broader stock market this year – are unlikely to break free of their current range until the Fed starts cutting rates.
‘Testing’ period for crypto firms
The sector has already seen a number of companies file for bankruptcy or insolvency in recent months, partly as a result of tumbling valuations, including lender Celsius, broker Voyager Digital and hedge fund Three Arrows Capital.
Some are concerned the wave is not yet over. This month, South Korean crypto investment firm Blockwater defaulted on a $3.4 million loan to TrueFi, a lender.
Marcus Sotiriou, an analyst at GlobalBlock, said it is “another example of chaos caused by centralised entities taking on too much leverage and risk”.
One boss told FN he was aware of several more big loans maturing in the final quarter, which could be “make-or-break” moments for sizeable market players.
Serhii Zhdanov, CEO of crypto exchange Exmo, said there are “no signs of a turning point in the near future. Growth looks unlikely for the crypto market in the final quarter.”
He added: “In general, this crypto winter is a period of testing. The uncertainties test the stability of all market players and identify weaknesses in the sector.”
Amid the turmoil, traditional finance players have made moves into the digital assets market.
Most notable is BlackRock, which announced a partnership with Coinbase earlier in 2022 and launched a spot bitcoin private trust for institutional investors.
Adrien Treccani, CEO of Metaco, a crypto custodian which has partnerships with Citigroup, Société Générale and BNP Paribas, said the bear market is “completely irrelevant” for institutions.
“They may even be happy, because they consider this as being one more opportunity for them to catch up and to position themselves as being the saviours of the markets.”
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