Trading volumes on one of the world’s leading cryptocurrency trading platforms fell 44% in the first quarter of the year as the mood around the cryptocurrency market continues to cool.
Coinbase shares, the largest stock Exchange of cryptocurrencies in the United States, fell 15.6% overnight from Tuesday to Wednesday after posting net losses of $ 430 million (£ 348 million), much worse than expected analysts.
The main loss for the company, which went public in April 2021 on the back of appetite for cryptocurrencies such as bitcoin, is in transaction fees, which caused revenue to drop 35% on the year.
Coinbase cited a “trend of both declining crypto asset prices and volatility that began in late 2021,” but was quick to point out that it does not expect these conditions to be “ permanent”.
The news has raised questions about whether the market has reached a predicted period of cooling – previously called “crypto winter” – or a more permanent cooling, possibly a “crypto ice age”.
Bitcoin is currently trading at its lowest price in 2022 at $31,000 (£25,140), less than half of what it was worth in November 2021.
The trajectory of Ethereum, another popular currency, has matched Bitcoin’s 13% price drop since last week, while other top cryptocurrencies, including Solana and Terra, have seen further results. worse.
“The current concern for crypto-asset investors is when the slide will end,” said Simon Peters, crypto-asset market analyst at trading platform eToro.
“The market is caught up in the broader adversity of investment markets battling to decide where comfortable levels are in the wake of interest rate hikes designed to stifle runaway inflation in the Western world. »
Interest rate hikes by central banks around the world have prompted investors fearful of cryptocurrency risk to seek safer ports.
However, there are fears that the cooling could extend beyond the usual boom and bust – or “bear and bull” – cycle of broader financial markets.
In January, as bitcoin traded above $42,000, Invesco’s global head of asset allocation, Paul Jackson, said the cryptocurrency could follow the trajectory of “a fad typical finance”.
He added: “The massive commercialization of bitcoin reminds us of the activity of stockbrokers in the run-up to the crash of 1929.”
The big players are coming – but so is winter
It is ironic that the “winter of crypto-currencies” is taking hold at the very moment when the major financial players are taking them seriously. On Wall Street, JPMorgan Chase, Morgan Stanley and Goldman Sachs are among the companies that have dedicated cryptocurrency teams. Traditional hedge funds, run by the likes of Alan Howard and Paul Tudor Jones, are investing billions in digital currencies.
Even on Coinbase, it’s not just speculators — “retail investors” — who buy and trade bitcoin. On the same subject : Ethereum is preparing for another takeoff, why ETH might test $3,750.. The platform said its institutional clients now account for 50% of the assets traded there, and that institutions traded $1.14 billion in crypto in 2021, compared to just $120 billion in 2020.
Regulators are also lagging behind, as they are only just beginning to realize the magnitude of the unintended consequences of a booming, and now stalling, cryptocurrency market.
Just this week, US Treasury Secretary Janet Yellen asked Congress to authorize the regulation of “stable currencies” – digital currencies linked to a traditional currency, of which TerraUSD is a part – in order to maintain the “financial stability”.
The Biden administration has long considered a federal strategy to detail the risks and opportunities associated with the use of cryptoassets.
Meanwhile, European regulators agree that many crypto-assets are still highly risky and speculative, likely to change rapidly in value and subject to “aggressive promotion”.
In the UK, regulators have come under some criticism, both in terms of establishing a framework for how companies owning crypto-assets can operate, and the powers regulators have to suppress fraudulent activities.
This did not prevent the Financial Conduct Authority [FCA] to consider only 33 cryptocurrency companies as “fit to operate” so far. “Many were rejected because they had inadequate provisions to prevent damage, or even identify it in the first place,” FCA chief executive Nikhil Rathi said. “We have to draw clear lines.”
He later added, “As we have always warned, if you invest in crypto, you have to be prepared to lose all your money. »
Some of the provisions of the Queen’s Speech will aim to target those who use crypto-assets to commit fraud, but little has been said about how to protect those who have chosen to invest in them.
A regulatory hammer blow could send cryptocurrencies down even further, while quick decisions could preserve any inherent value. The future is unclear: a brief winter break or an end-of-epoch ice age both seem possible. No individual currency or platform will be able to protect against this.
Those concerned with trading remain, at least, optimistic for now: even Coinbase signed its shareholder letter with #wagmi, a popular epithet in the crypto community that means “we’re all going to get there”.
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