Can Crypto Markets Really Get Any Worse? Yes, Industry Experts Say

• Final yr was brutal for crypto markets, with the fallout of FTX, Celsius, and Three Arrows Capital.
• “Centralized lending and earn merchandise are going the best way of the dodo,” one exec mentioned. 
• Consultants shared their 2023 outlooks and defined how issues might worsen earlier than they get higher.

Cryptocurrency markets took a significant beating in 2022, with the downfall of trade giants like digital asset trade FTX, algorithmic stablecoin TerraUSD, and now-defunct fund hedge fund Three Arrows Capital.

The trade’s market cap is off greater than 65% from report highs in November of 2021, in line with information from Messari, with bitcoin and ethereum down over 60% year-to-date. 

Many are asking themselves: Can it get any worse?

For context, the sector noticed an 18-month long bear market, dubbed “crypto winter,” from 2018 via 2019. 

“Contagion takes a very long time to totally play out and we anticipate that there are nonetheless some dominoes to fall in 2023. With that mentioned, we’re already seeing a renewed dedication to constructing higher, extra reliable options within the house and anticipate that development to be a core theme of 2023,” Phil Wirtjes, Head of Technique at digital asset buying and selling platform Enclave Markets, instructed Insider.

What is the subsequent shoe to drop this yr?

All eyes are on Digital Forex Group, the conglomerate that oversees heavyweights like asset supervisor Grayscale and crypto brokerage Genesis.

Genesis is underneath hearth after its lending arm halted withdrawals in November. The agency had publicity to Sam Bankman-Fried’s collapsed trade, with $175 million caught on an FTX buying and selling platform. Genesis says clients rushed to withdraw funds after FTX filed chapter, which led to a extreme liquidity crunch.

“The upcoming downfall of Genesis has been a subject of concern for a while, as nearly all of its belongings are owned by US hedge funds and the market has already adjusted for this information,” Andrei Grachev, the Managing Associate at digital asset market maker DWF Labs, instructed Insider.

He added: “Whereas the collapse might not have a significant impression on the trade as an entire, it marks the top of an period as DCG, lengthy feared to be the ultimate domino to fall, will lastly succumb.”

Genesis slashed 30% of its workers on Thursday, an organization spokesperson instructed Insider, with the gross sales and business- growth groups being most impacted by the cuts. Gemini, the cryptocurrency trade that lent Genesis funds for its interest-bearing product, is attempting to recoup $900 million of buyer cash from the embattled agency. 

There may be majors losses and liquidations all through the trade if a big agency like Genesis or its father or mother firm DCG had been to file for chapter.

“Lawsuits and bankruptcies will proceed for a few years. Even at the moment, the cash from the chapter of Mt.Gox from 2014 are awaiting distribution,” Tegan Kline, CBO and co-founder of software program developer Edge & Node, instructed Insider. “The most important unresolved scenario proper now’s the scenario with DCG, Genesis, and Grayscale and we’re ready to see what occurs there.”

FTX contagion may result in extra bankruptcies and lawsuits this yr as nicely.

Fedor Muegge, companion at blockchain enterprise agency 369 Capital, instructed Insider that the trade hasn’t seen the FTX or Terra and Luna implosions absolutely play out but.

“We’ve not even began to essentially unravel FTX and its community of corporations. Additional work on this and investigations in different latest occasions such because the Terra-Case, may result in extra lawsuits,” Muegge mentioned.

He added: “Along with that, lots of smaller gamers will run out of liquidity throughout this extended bear market which is able to finally result in extra bankruptcies. “

“It is doable with main market shock(s), crypto can go even decrease than Luna/UST/3AC and FTX occasions, to $12-13K Bitcoin and $8-900 Ether,” Youwei Yang, Chief Economist at crypto mining firm BTCM, instructed Insider, citing a possible harsh macro situation, restrictive regulatory atmosphere, or DCG chapter.

Count on a pullback on double-digit curiosity yield choices from centralized companies, as a result of if there’s something that we have realized from crypto in 2022, it is that if it sounds too good to be true, then it most likely is.

Centralized lender Celsius supplied clients practically 20% annual proportion yields for deposits. The agency later filed for chapter after a liquidity disaster in July. 

“Centralized lending and earn merchandise are going the best way of the dodo,” Tegan Kline, CBO and cofounder of software program developer Edge & Node, instructed Insider. “You may nonetheless earn engaging yields utilizing web3 protocols and dapps, particularly in DeFi.”

Consequently, buyers might flip in the direction of decentralized finance, or DeFi protocols like Aave and Compound, or decentralized exchanges like Uniswap.

“There are a lot of protocols that supply yield from staking to securing the community as with ethereum or DeFi protocols which have come out of the disaster in crypto lending with flying colours,” Kline added.