Has institutional money left crypto?

important point

  • Cryptocurrency prices have rebounded significantly this year, but the space remains barren compared to pandemic hysteria
  • Institutional money is flowing out at an alarming pace, with no guarantee of its return
  • The 2022 scandal was so big that capital is reluctant to go back

Saying “2022” to someone remotely involved in the cryptocurrency industry sends shivers down their spines. It was a year filled with scandals, embarrassment, and most of all, price crashes.

Bitcoin It’s a good indicator of how the industry is moving. The world’s largest cryptocurrency peaked at nearly $69,000 in November 2021. A year later it was $15,500.

Since the low in November, the price has risen significantly. Bitcoin is currently trading around $29,000 amid softening inflation data and growing optimism about the future of interest rates after winter.

But things are different. And despite these price increases, there must be some concern that the cryptocurrency industry has suffered an indelible blow to its reputation. did you give?

Justin Chapman, Head of Digital Assets and Financial Markets at Northern Trust, summed up these concerns: interview “Client interest has definitely fallen off the cliff in terms of institutional interest in crypto,” he said on CNBC this week.

“After 2022, it’s definitely quieter institutionally,” he continued. “Before that, we were seeing traditional fund managers trying to launch crypto funds, ETPs in Europe that are the equivalent of ETFs in the US, but it has really quieted down. Even hedge funds are definitely reducing their exposure within that particular space.”

This evidence goes beyond anecdotal. We have compiled several reports on the huge outflow of funds from the cryptocurrency market recently. One of my favorite charts to show this extent is looking at exchange stablecoin balances. In November, he said, more than half of the total balance of stablecoins has evaporated from exchanges since FTX collapsed. in short, $22 billion outflow.

The market depth of the exchanges is similar: the capital is just ran away.

Cipher messed up when camera is on

The surge in cryptocurrencies during the pandemic has arguably put them on the main stage, influencing an unprecedented amount of money into the sector. The scale of such scandals, especially his FTX and LUNA bankruptcies, raises concerns that institutional money will never return at the same pace.

When Tesla bought Bitcoin and put it on its balance sheet, it felt like the beginning of a movement for the entire crypto industry. Funds from the currency settlement were flowing into space like a tsunami.

But then I got a crash. Not only that, but the total lack of regulation in this area and the lack of risk management has put the entire industry into a very public and dishonorable tailspin, resulting in bankruptcy after bankruptcy.

Today, regulators are working hard and the US environment is becoming more and more hostile. In February, his BUSD stablecoin under the Binance brand was shut down. Disgraced FTX Founder Sam Bankman-Fried Awaits Trial, Binance CEO Changpeng Zhao Indicted by CFTC for Operating “Intentionally Opaque Common Enterprise” . This includes charges of “failure to implement basic compliance procedures designed to prevent and detect terrorist financing and money laundering.” Coinbase has been issued a Wells Notice by the SEC, warning of impending lawsuits for securities violations.

How many hits can one industry take?

Bitcoin is somewhat detached and uniquely positioned as the first cryptocurrency, and the goal of being a store of value means it at least has a goal. But for the rest of the crypto, not all points are clear, nor are the future prospects.

Crypto was given the perfect setup. An explosive bull market dating back to 2009 was fueled by historically low (sometimes negative) interest rates, plus a pandemic that kept everyone at home with a stimulus check. Arrived just as the DIY investment started.

Publicly traded companies entered, countries declared fiat currencies (El Salvador, Central African Republic), and clients called their fund managers and asked how they could buy these mysterious virtual coins.

Years later, the space’s reputation is in tatters. Retail money may come and go, but massive amounts of institutional cash can prove difficult to recoup, and the lofty dream of decentralized altcoins revolutionizing global life is certainly More fancy. Most fund managers don’t want anything to do with crypto right now, nor should they.

Even after prices rose this year, most coins are still trading well below their peaks. Even Bitcoin is down 58% from its highs. Not only that, the liquidity of most coins remains low, volatility is high, legal issues for cryptocurrency companies are on the rise, and the regulatory landscape is more uncertain than ever.

Crypto prices may be rising. But the space is still barren compared to the bull market hysteria. And there’s not much evidence that institutional money will pay off any time soon.

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