The cryptocurrency industry has come a long way since the dramatic price swings that occurred last year. In 2020, Bitcoin dropped from around $30,000 to below $20,000 in just over a week, causing many companies to fail. Among them was Three Arrows Capital, whose co-founder Su Zhu described the tailspin as the “nail in the coffin” for his hedge fund.
However, fast forward to today, and Bitcoin has just retraced that path from $20,000 to $30,000 in the past month. While the industry is undoubtedly in a better place than it was during the tumultuous times of last year, it’s clear that the promising rebound alone won’t be enough to fix all of the damage that was done.
The downfall of high-flying startups has led to many bankruptcies, including Voyager Digital, Celsius, FTX, Blockfi, Genesis Global, etc. As a result, several more caskets were hammered shut, and the industry is a shadow of what it was the last time the token crossed that milestone.
The alleged wrongdoing that has drawn regulatory scrutiny and high-profile enforcement actions in the US has also contributed to the industry’s uncertainty. FTX’s Sam Bankman-Fried is awaiting trial on fraud charges, while Do Kwon, co-founder of the Terra blockchain, is facing prosecution for his role in the project’s collapse. The Commodity Futures Trading Commission has sued Binance and its CEO, Changpeng “CZ” Zhao, for alleged violations. Coinbase Global Inc. has received notice that the Securities and Exchange Commission intends to sue the company. Binance and Coinbase have denied wrongdoing, while Bankman-Fried pleaded not guilty.
Moreover, the recent failure of crypto-friendly banks such as Silvergate Capital Corp., Signature Bank, and Silicon Valley Bank has further contributed to the uncertainty in the industry. While these banks were often cited as a bullish catalyst for Bitcoin, as they revived its origin story as an alternative to untrustworthy banks, their downfall severed key links to the US financial system, making the once-promising future of the crypto industry as uncertain as ever.
Many retail investors burned by last year’s price plunge appear to be licking their wounds rather than taking on new risks. As a result, the amount of money involved in decentralized finance projects still needs to be increased. Although the total value of coins locked into DeFi projects is up more than 25% since the beginning of January, at about $50 billion, it is still a fraction of the $180 billion peak reached in December 2021, according to the DeFiLlama website.
The industry has also seen thousands of jobs lost, and hiring has not picked back up. In a sign of the supply of talent still outstripping demand, blockchain project Concordium received more than 350 applications for a couple of recent job openings, said its co-founder and chairman Lars Seier Christensen. “The space is maturing a bit, realizing that the money tree available a couple of years ago has withered a bit,” he said.
Private funding for crypto startups globally fell to $2.4 billion in the first quarter, an 80% decline from its all-time high of $12.3 billion during the same period last year, according to PitchBook. Investments from venture-capital firms have slowed dramatically. “Much of the industry is still in wait-and-see mode,” said Matteo Dante Perruccio, international president at crypto wealth manager Wave Digital Assets. “There has been a flight to quality, and the beneficiaries are those companies that weren’t hit by the crypto winter.”
Despite all of the uncertainty, progress in the industry’s evolution has continued. Ethereum this week completed what appears to be a successful upgrade.