Their defenders like to recall that they were born in the wake of the 2008 financial crisis. They saw in them an asset uncorrelated to the traditional market and conferred on it both the role of safe haven and diversification. The 60% collapse of the cryptocurrency market since November strips them of all these presumed attributes. This does not prevent these virtual currencies, criticized for their energy-intensive mining, from still suffering from a lack of legitimacy and acceptability in its form of currency. And to be the target of all the warnings.
At the height of their popularity in November, cryptocurrencies made up a market with a capitalization exceeding the 3 trillion US dollars mark and with more than 200 million followers. This universe housed nearly 13,800 virtual currencies and 429 exchange platforms, according to CoinMarketCap, a market remaining however concentrated around bitcoin, which then retained 42% of the capitalization, followed far behind by ethereum, with a weight of 19 %.
Today, global capitalization has reached 1,200 billion, or 60%, or 1,800 billion less than six months ago. There are just over 10,000 cryptocurrencies and 309 trading platforms.
For number of followers quoted by The Canadian Press, this crash with bitcoin at US$29,710—down 25% year over year, but down 56% from its peak at US$66,930—represents an opportune time to enter the market. It also offers the opportunity to clean up the market, to separate the wheat from the chaff and to reveal the values that can deserve the title of “first quality”. The opportunity is also offered to consolidate the industry around the most established firms.
But for others, the collapse in the wake of the ” stablecoins “, backed by a fiduciary currency or a real asset, caused a real shock wave. They no longer rule out the possibility that cryptocurrency could get bogged down in a fundamentally bear market (“ bear market ”) spanning a year or two.
Long list of risks
And for regulators, the opportunity is once again offered to reconsider the risks posed by these assets. This week, the alert came from New York State Attorney General Letitia James. Subject to extreme and unpredictable price swings, cryptocurrencies are among the riskiest investments on the market. Several of these risks materialized in the past month, rocking both new and more established currencies, she said.
The list is long. It includes volatility and the risk of potential loss from hacking, fraud and theft. We are talking about highly speculative value. Easy to create, the underlying value is too often subjective, unrelated to reality (except for ” stablecoins but still, she adds), subject to the influence of social media platforms. These assets suffer from a lack of liquidity, and can be difficult to sell. They can suffer from the absence of guarantees of finding a taker and the absence of mechanisms for stopping trades in times of high stress, such as can be found on regulated trading platforms.
Adding to the list are sometimes high transaction costs, with some trading platforms requiring fees on transactions such as fund transfers and withdrawals, which may vary depending on the amount of the transaction and the size of the volume traded. The prosecutor also mentions the hidden costs resulting from the value of the cryptocurrency or the cryptoasset being amplified or inflated under the game of programmed automatic transactions (or botsin English).
She also talks about stablecoins rather unstable. Despite their name, there is no guarantee that this type of virtual currency provides protection against loss of value. The nature and quality of the underlying asset can vary widely.
Not to mention the potential conflicts of interest, several platform operators who hold crypto use their platform for personal gain, without supervision. “Recent reports also indicate that large investors have received preferential treatment, such as off-market cash-outs,” she added.
Finally, monitoring of this market is very limited, with the absence of a regulated trading venue such as the New York Stock Exchange or the Nasdaq. The platforms are operated here and there on the planet, many of which are not accessible to any form of surveillance and regulatory control. In the event of fraud or embezzlement, the victim is too often left with little or no recourse. And several crypto issuers are unregulated, thus evading any audit and capital requirement.
A long list, it was said, that emerges from ” bear market ” in ” bear market “. The last for cryptos dates back to 2018.