Recent uptrend shows that crypto is not going anywhere

But to conclude from this that crypto’s existential problems are over would be an oversimplification.

After their near-death experience in 2022, cryptocurrencies are back in business. Bitcoin, whose market capitalization of $587.57 billion at the start of the week accounts for nearly 50 percent of the total market capitalization of all cryptocurrencies, traded at $30,304 on April 17, 2023, up 70 percent from its November 2022 price. Ethereum, in the mean time is up over 90 percent in the same period. Of the over 20,000 cryptocurrencies, nearly 8,000 are active with 10 of them including Elon Musk’s favorite, Dogecoin, now having a market cap of over $10 billion each.

It is a far cry from the end of crypto that was predicted not too long ago when repeated strikes left most digital currencies battered and destroyed.

The first signs of trouble came last May when stablecoin TerraUSD, or UST, then ranked among the 10 most valuable cryptocurrencies, fell rapidly. It was a big shock to the crypto universe since Terra hit a peak of almost $120 last month. At the same time, TerraUSD’s sister token Luna collapsed to almost $0. In the ensuing panic, nearly $40 billion in investor wealth was wiped out as many ordinary people lost their life savings.

The crypto market went into limbo over the next few months and by the end of November 2022 had fallen more than 70 percent from its previous peak in November 2021. Any hope of a recovery was dashed by the sensational revelations at the end of the year about how Sam Bankman -Fried, once the poster boy of the crypto world, had perpetrated a scam involving his hedge fund Alameda Research and the crypto exchange FTX he had created. As US investigators called it “one of the largest financial frauds in American history”, the end seemed near.

Instead, the start of this year brought happy news for the crypto industry, and since then the prices of most major coins have been up and down.

There are several factors driving this bull run. Experts say that the outbreak of the scams and the collapse of some currencies has actually worked in crypto’s favor by eliminating the profits that had inevitably built up after the irrationality of 2021-22. At the same time, increasing levels of security and decentralization of the Bitcoin network have led to mainstreaming with many more companies accepting it, leading to increasing demand, credibility and adoption.

In addition, the implosion of SVB Financial and Credit Suisse (CS), all within a month, cast a shadow of doubt on the stability of the traditional banking system. It proved that the traditional banking system, 15 years after the chastening crisis of 2008, continued to be fragile and vulnerable. A contagion was avoided only through government intervention, exactly the fault line crypto stalwarts have been pointing to for the past several years. A pause in the US Federal Reserve’s rate hike cycle is also fueling the move to cryptocurrencies.

But to conclude from all this that crypto’s existential problems are over would be an oversimplification. US regulators continue to crack down on institutions and individuals involved in cryptocurrencies.

In March, the US Commodity Futures Trading Commission (CTFC) filed a lawsuit against crypto exchange Binance, alleging “numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations.” Coinbase, another major US exchange, is also under the lens. Meanwhile, the SEC has cracked down on celebrities such as Lindsay Lohan, Kim Kardashian, DJ Khaled and Steven Seagal, for illegally promoting digital assets. Meanwhile, the vulnerabilities of the cryptosystem were once again exposed last week when US authorities handed out a one-year sentence to James Zhong, a resident of Georgia, for stealing $3.4 billion worth of Bitcoin.

On the sidelines of the annual spring meetings of the International Monetary Fund (IMF) and the World Bank, India’s Finance Minister Nirmala Sitharaman spoke about the G20’s discussion on crypto regulation and warned that “Today we are in a position to see how countries are now recognizing that it is not only a regulatory issue for cryptoassets, where the countries have to come together, but… There may be problems with macroeconomic stability in itself.”

As the example of SVB and Credit Suisse once again proves, traditional finance has become too big to fail. The same may be the case with the digital economy soon.