What goes up must come down — including crypto. Last month the $40bn collapse of cryptocurrency luna sent shockwaves through the market, ether shed more than a third of its value and bitcoin, the oldest token on the market, fell below $20k for the first time since 2020.
Of course, volatility isn’t new in the world of crypto finance, but this dramatic crash caused many to question: is it over for crypto?
Zak Lambert, product lead at fintech Plaid, doesn’t think so. “I certainly don’t think it’s over,” he tells Sifted. “It’s a matter of perspective: if it’s a five-year window, it’s a great growth story, if it’s a six-month window, it’s a crash, so the framing matters a lot.”
It also matters to the many crypto owners. According to a Sifted report, the number of global crypto owners almost tripled in 2021.
So what’s really next for crypto? We asked the experts.
“Investment will continue”
For Lambert, it’s first important to remember that not all crypto coins are created equal.
“There’s an arm of crypto that is fiat-backed and clearly viable,” he says. “And then there is an arm that is maybe not speculative, but more financially engineered and creative, and that piece is what saw the teardown where the market went up basically because there were sentiments that the market would continue to go up and that confidence diminished a little bit and then quite precipitously.”
Secondly, Lambert says, fast news cycles and society have a low tolerance for longer-term windows for outcomes.
“Account-to-account payments are fairly new. We expect that to be transformational over time — you’ll be able to transact from your bank account wherever you are in a way that is easier than using cards,” he says. “That doesn’t come true overnight and it’s the same thing with crypto.”
Although the stock market is in turmoil, retail investors appear to be sticking to their long-term plans
Lambert says the continuity of investment capital into the space shows there’s still interest in what crypto could become in the future. However, the mega rounds of 2021 including Sorare’s $680m Series B at a valuation of $4.3bn could be a thing of the past for now.
“If you look at all the big VC funds where crypto is their number one investment area, they are specifically focused on it, they are very interested in the space,” says Lambert. “That is not speculative or price driven, they’ve already raised this money and they need to allocate it to something they think will be a valuable use case in ten years.”
Yorick Naeff, CEO of crypto trading platform BUX, agrees, adding his clients are still using crypto as a long-term investment.
“Although the stock market is in turmoil, retail investors appear to be sticking to their long-term plans,” he tells Sifted. “Our clients generally have diverse portfolios that include stocks, ETFs and crypto and given the nature of our offering, we are not surprised to see that the majority of our clients display a longer-term investment strategy, rather than grabbing quick profits in the short term.”
Dolf Diederichsen, CEO and cofounder of Hyphe, which provides financial institutions with digital asset liquidity, says banks are also still keen.
“I like to say ‘bear = build’, and certainly the banks we're working with continue to develop the infrastructure and projects slated before this recent market downturn,” he says. “Some of them are actually moving faster now, laying the groundwork for future growth.”
“Use cases will be actualised”
Lambert says he expects to see two things in the crypto market: less crypto projects overall and more people building things to solve problems for consumers — not just for the sake of creating something cool.
“Crypto is really interesting as a concept for a lot of people, that’s fairly self evident. The thing that the industry has not done thus far that it needs to do is prove value for users versus prove interestingness for developers,” he says.
Crypto still has a lot of fundamental value and there is a lot of potential in the disruptive nature of some of the crypto-based technologies
One use case for example is solving the slow pace and inaccessibility of wire transfers.
“Digital commerce is up, things that don’t require you to be in a physical location to do a certain thing are just more important as we live more of our lives online and crypto is one of the things that lets you carry some portion of your identity or your ability to transact anywhere around the world anytime,” says Lambert. “If it takes someone three days to settle their transaction, then they’re probably going to be less likely to go to the place where they made that transaction the next time.”
Naeff adds that BUX is continuing to increase its crypto offering so more people will be able to test out the technology.
“In the long term, we still believe in crypto as an asset class here to stay. We will therefore continue to increase our offering to allow access to even more cryptos via the BUX platform,” he says. “Crypto still has a lot of fundamental value and there is a lot of potential in the disruptive nature of some of the crypto-based technologies.”
But first, education
Crypto also has an accessibility problem — crypto users are overwhelmingly young men.
“The industry needs to prove value to the average consumer,” says Lambert. “If all you can do is self-congratulate and discuss it among people that are already interested in it, you have not done your job in moving the industry forward.”
Lambert says the parallel for Plaid is open banking: “Open banking is super interesting to anyone that’s deeply involved in it, but open banking as a term doesn’t really mean much to consumers.”
The industry needs to prove value to the average consumer
Yet, Lambert says open banking could be the bridge that helps crypto become more accessible to consumers by creating user journeys that people understand. That in turn prompts more people to try crypto again.
“What we do is take a user, give them a journey that they’re familiar with, it’s super easy and automatically redirects them back to say their Barclays app to move money on to say the Coinbase of the world,” says Lambert. “If the users have a bad time making a deposit, then they’re probably less likely to interact with the place where they made the deposit down the line.”
More regulation = more trust
While some dismiss crypto, it’s hard to dismiss the fact it’s been hard to avoid it — whether it’s horror stories of people losing out or success stories of newly rich kids.
Last year, FCA research estimated 2.3m British adults owned some form of crypto asset, which according to the FT isn’t far off the numbers who invest in stocks.
What happens next is regulators get more involved, which they have been, that’s something that is deeply important
This means users need to know what they are doing and Lambert thinks more regulation will become an important part of that.
“I think what happens next is regulators get more involved, which they have been, that’s something that is deeply important to us as a foundational piece of the ecosystem,” he says. “There should not be a world where a consumer thinks they have deposited liquid cash somewhere and that at some point gets locked up and they’re not able to receive that liquid cash back.”
Lambert adds regulation will make the crypto industry better and give people the opportunity to trust crypto.
“One of the reasons financial services companies, like your local bank branch, have been successful for a long time is because people trust those entities and part of that trust is because governments very tightly regulate those entities,” he says.
Diederichsen agrees, adding more unified regulation, which continues to develop at an EU level, should make crypto much safer.
“To some degree it is good to experience tougher conditions,” he says. “Especially if that shakes out products and platforms with unsustainable foundations, or unfair practices that to be honest would not cut it in the sort of regulatory framework we expect by 2024.”
