How has the decline in Bitcoin’s value drawn in small investors?

Cryptocurrency Bitcoin has suffered a severe crash this year after its record year 2021. The decline in the value of the cryptocurrency has plunged not only small investors, but also, for the first time, many hedge funds, asset managers and, above all, a large trading exchange into the abyss.

These are tough times for Bitcoin fans: The narrative that Bitcoin is a hedge against inflation has been badly hit. Given the widespread inflation around the world, Bitcoin did not serve as a hedge against monetary depreciation.

Bitcoin in a bearish spiral

On the contrary: Bitcoin, the best-known cryptocurrency, has dropped from its all-time high of just under $70,000 in November 2021 to just under $17,000 at the end of this year; twelve months.

“In fact, bitcoin was neither a hedge against inflation nor a safe haven in the event of market fluctuations,” admits Ipek Ozkardeskaya, an analyst at crypto-affine online bank Swissquote. The cryptocurrency market has significantly underperformed the stock market over the past year.

“2022 was a tough year for cryptocurrencies,” says Swiss crypto bank Seba. Events like Terra Luna’s algorithmic stablecoin UST crash in May, hedge fund Three Arrows Capital exploded in June, and most importantly, one of the biggest crypto exchanges called FTX crashed in November, hitting the market hard.

Uncertainties for next year

“These crashes have left many scars and undermined overall trust in blockchains and cryptocurrencies,” Seba experts write. It sounds similar to Bitcoin Suisse: the collapse of FTX plunged “numerous” companies into the abyss. And a high level of uncertainty is expected in the crypto market next year.

Swiss crypto institutes also assure that they were only marginally affected by the FTX crash surrounding former “crypto genius” Sam Bankman-Fried (30), often referred to simply as “SBF”. SBF was recently arrested in the Bahamas and indicted by the US Financial Markets Authority (SEC).

For example, on Bitcoin Suisse – “as far as our own funds are concerned” – it is said that “exposure to FTX is significantly reduced at an early stage”. About 90 percent of stocks can be withdrawn before the crash.

Will Switzerland benefit from the FTX collapse?

The Swiss financial supervisory agency Finma also announced that “so far there has been no indication of serious risks in the context of FTX events” regarding financial institutions audited by Finma.

And not only that: if you believe the leaders of Swiss crypto banks, they were even able to take advantage of the FTX debacle. For example, Sygnum CEO Mathias Imbach said at an event recently that the bank has received several hundred million francs from new client funds since FTX went bankrupt. According to Imbach, the already stable regulatory framework in Switzerland and Sygnum’s full banking license create trust in an environment that is currently uncertain.

Local crypto banks should be content that the heavy hand of regulatory authorities can now follow the stream of destroyed FTX billions. It gives them an edge over their not yet regulated competitors.

human error is to blame

“However, it is hoped that regulation serves more to protect investors and not restrict innovation,” said Marcus Dapp, principal analyst at Bitcoin Suisse. Because “homemade” problems in the crypto industry can be solved, especially since human error has led to loss of trust.

Meanwhile, the bankruptcy carousel continues to happily spin after the FTX bankruptcy. Following other bankrupt industry giants like BlockFi, Bitcoin trust Grayscale has also come under pressure. Additionally, speculation has been circulating lately that the largest, still largely unregulated crypto exchange Binance is also suffering from strong fund outflows.

Edit as savior

According to Crypto Finance Group’s review of the FTX collapse from Zug, this “domino effect” shows how the “financial engineering” of the crypto ecosystem has driven an entire industry into the abyss. The Deutsche Börse-owned company also sees regulation as a savior: “Existing regulatory measures and standards need to be implemented so that such incidents do not recur in the future.”

Meanwhile, the industry is also falling back on a long-serving model in this country. Adhering to the motto “Every crisis is an opportunity”, they evoke the spirit of development. At Bank Seba, it sounds something like this: “The year 2023 is expected to provide a conducive environment for developers to build and test different ecosystems.” The Zug-based crypto bank also believes that crypto markets will continue to evolve at an “increasing pace”. (SDA/shq)