- Last year was brutal for the crypto markets, with fallout from FTX, Celsius and Three Arrows Capital.
- “Centralized lending and earning products are going the way of the dodo,” one executive said.
- The experts shared their outlook for 2023 and explained how things can get worse before they get better.
Cryptocurrency markets have taken a big hit in 2022, with the fall of industry giants like digital asset exchange FTX, algorithmic stablecoin TerraUSD and now-defunct hedge fund of funds Three Arrows. Capital.
The industry’s market capitalization is down more than 65% from record highs in November 2021, according to data from Messari, with bitcoin and ethereum down more than 60% since the start of the year.
Many wonder: Can it get worse?
For context, the sector experienced an 18-month bear market, dubbed “crypto winter,” from 2018 to 2019.
“The contagion takes a long time to fully unfold and we expect there will still be dominoes to fall in 2023. That said, we are already seeing a renewed commitment to building better and more reliable solutions in the space and we expect this trend to be a central theme of 2023,” Phil Wirtjes, chief strategy officer at digital asset trading platform Enclave Markets, told Insider.
What is the next shoe to be released this year?
All eyes are on Digital Currency Group, the conglomerate that oversees heavyweights like asset manager Grayscale and crypto broker Genesis.
Genesis has come under fire after its lending arm halted withdrawals in November. The company was exposed to the Sam Bankman-Fried stock market crash, with $175 million blocked on an FTX trading platform. Genesis says customers rushed to withdraw funds after FTX filed for bankruptcy, leading to severe liquidity shortages.
“The impending downfall of Genesis has been a concern for some time as the majority of its assets are held by US hedge funds and the market has already adjusted to this news,” said Andrei Grachev, managing partner at Digital Asset Market Maker. DWF Labs, Insider said.
He added: “While the collapse may not have a major impact on the industry as a whole, it marks the end of an era when DCG, long feared to be the last domino to fall. , will eventually succumb.”
Genesis cut its staff by 30% on Thursday, a company spokesperson told Insider, with sales and business development teams hit hardest by the cuts. Gemini, the cryptocurrency exchange that lent funds to Genesis for its interest-bearing product, is trying to recover $900 million in client money from the embattled company.
There could be to be major losses and liquidations across the industry if a big company like Genesis or its parent company DCG were to file for bankruptcy.
“The lawsuits and bankruptcies will continue for many years to come. Even today, parts of the 2014 Mt.Gox bankruptcy await distribution,” said Tegan Kline, CBO and co-founder of the software developer. Edge & Node, at Insider. “The biggest unresolved situation right now is the situation with DCG, Genesis and Grayscale and we’re waiting to see what happens there.”
FTX contagion could lead to even more bankruptcies and lawsuits this year.
Fedor Muegge, a partner at blockchain venture capital firm 369 Capital, told Insider that the industry has yet to see the FTX or Terra and Luna implosions play out in full.
“We haven’t even begun to really untangle FTX and its corporate network. Further work on this and investigation of other recent events such as the Terra case may lead to more prosecutions,” said Mugge.
He added: “On top of that, many smaller players will run out of cash during this prolonged bear market, which will eventually lead to more bankruptcies.”
“It’s possible with major market shocks, crypto can go even lower than Luna/UST/3AC and FTX times, to $12-13K Bitcoin and $8-900 Ether,” said Youwei Yang, economist chief of crypto mining company BTCM. Insider, citing a potentially challenging macro condition, restrictive regulatory environment, or DCG’s bankruptcy.
Expect a decline in double-digit interest yield offers from centralized companies, because if there’s anything we’ve learned from crypto in 2022, it’s that if it sounds too good to be true, then it probably is.
The centralized lender Celsius has offered its clients almost 20% annual percentage return for deposits. The company then filed for bankruptcy after a liquidity crisis in July.
“Centralized lending and earning products are going the way of the dodo,” Tegan Kline, CBO and co-founder of software developer Edge & Node, told Insider. “You can still earn attractive returns using Web3 protocols and dapps, especially in DeFi.”
As a result, investors can turn to decentralized finance, or DeFi protocols like Aave and Compound, or decentralized exchanges like Uniswap.
“There are many protocols that offer performance ranging from staking to securing the network, such as with Ethereum or DeFi protocols that have come out of the crypto lending crisis with flying colors,” Kline added.