Cryptoverse looks towards increased regulation

The cryptocurrency world looks tepidly towards the new year with possibilities of more regulation and oversight, as disaster after disaster struck the asset in 2022. Sector analyst maintain that the essential arguments in favour of virtual assets and blockchain remain relevant, and new norms will emerge in the year that will make it better

Rising interest rates, lower risk appetite due to geopolitics and the biggest of them all — the collapse in crypto exchange FTX — resulted in an unprecedented upheaval in the crytpoverse last year. While there were many investors who were looking to make a quick buck in 2022, most of them are now scurrying for cover.

Bitcoin, the digital coin that is almost synonymous with the sector, collapsed from $50,000 levels to less than $20,000 now. According to data from digital asset manager CoinShares, crypto funds have seen net inflows of $498 million in 2022, versus $9.1 billion in 2021, according to a Reuters report, which estimates that Bitcoin has lost 60 per cent of its value, while the wider crypto market has shrunk by $1.4 trillion.

So how will it be in 2023?

Crypto watchers believe that the failure of FTX, which has led to one of the biggest runs on the sector, should not be a reason to malign the entire crypto universe. Most of them hold that it was more an issue of regulation and oversight than an actual inherent fault with cryptocurrencies themselves.

The FTX issue also highlights the needs for the “cryptocurrency industry to harness blockchains’ inherent transparency to build an economic system that holds itself to a higher standard than traditional finance,” research firm Chainalysis wrote in a recent report. “With the right data, tools, guidance, and partnerships, the cryptocurrency industry can hold its businesses and people accountable to protect consumers by design,” Chainalysis’ founder Michael Gronager wrote in a recent blog.

According to experts in the field, DeFi, implying decentralised finance, should be the way forward. “No other sector of the crypto ecosystem embodies transparency more than DeFi, where all transactions are visible and the code behind protocols is in the open for all to see. The entire crypto industry should strive for this level of transparency,” Gronager says.

Many share the opinion that the FTX fiasco has set back the growth and resilience of the crypto ecosystem by several months, if not years, Deutsche Borse’s crypto finance arm wrote in a recent report. “With trust decreasing, yet again, it will become more and more complex for retail investors, and institutions to enter the space. As a consequence of this incident, it is likely that regulators across the globe will increase regulatory scrutiny on intermediaries, such as centralized crypto exchanges,” the report said.

It the same time, the Deutsche Borse researchers felt that the innovations enabled by blockchain technology remain unchanged, as do the fundamental values of crypto, and the building of quality protocols and projects within the ecosystem will likely continue. “Digital assets are the financial instruments of tomorrow and should therefore be managed by regulatedfinancial intermediaries that have therequired expertise and ethics required to safekeep customer assets,” the report says.

Tarusha Mittal, COO and Cofounder of Dapps and UniFarm says the FTX collapse is good on the macro level for the industry, as users will yet again realise that web3 is all about decentralisation. “The companies that don’t have a strong foundation and have strong investments will be flushed out. Only real business models will thrive. FTX collapse is a good reminder that crypto is all about removing centralised bodies,” she said.