Crypto ‘comeback’? This time it’s not different
HERE we go again. With the Federal Reserve signalling an end to its interest rate hike cycle and the possibility of spot Bitcoin ETF approval by US regulators, the crypto bros are now crawling out of the woodwork after a long winter.
Bitcoin has been on a tear this year, with prices above US$44,000 at one point in December – a 20-month high – after starting the year around US$16,000. As at Dec 12, it’s hovering above US$41,000, reflecting its trademark volatility. The world’s second-largest cryptocurrency Ethereum has also risen, albeit less dramatically, to above US$2,200 from slightly above US$2,000 a month ago.
Bitcoin still has some way to go compared with the height of the crypto boom in Nov 2021 when its price soared above US$68,000. But investors who have been HODL-ing (crypto lingo for holding on for dear life) since the last bubble are now betting that prices will once again go “to the moon”, never mind the pain of crashing to the ground in the past year or so.
Crypto enthusiasts say that the industry has reached a turning point, thanks to the regulatory crackdown over the past year weeding out bad actors and the self-implosion of many others who either had poor risk management or were fraudulent. The meltdown claimed the scalp of two of crypto’s biggest players – FTX collapsed and its founder Sam Bankman-Fried was convicted of fraud, while Binance was fined US$4.3 billion and its founder Zhao Changpeng (known as CZ) had to step down.
An industry cleanse aside, Bitcoin may indeed have legs for prices to rise if the stars are aligned. The green light for spot Bitcoin ETFs could potentially woo back more investors, driving up prices. But this tailwind that’s fuelling Bitcoin has nothing to do with its fundamentals.
The question to ask is if crypto as an industry has matured since the market crash. One criticism that has been levelled at the industry has been its opacity, enabling virtual currencies to be used in money laundering and terrorism financing. In crypto’s defence, there have been some steps to strengthen controls – it is an issue that the financial industry at large is also grappling with.
But unlike the financial industry, some crypto players are still not playing ball when it comes to issues of transparency. If one were expecting CZ’s departure from Binance to herald a new dawn, you might be sorely disappointed. When Binance’s new CEO Richard Teng was asked where his global headquarters were at the Financial Times’ crypto summit in London last week, he had a sardonic response: “Why do you feel so entitled to those answers?”
The CEO added that the company provides all necessary information to regulators and there is no need to share everything publicly. So, not quite the beacon of transparency hoped for with the regime change in Binance.
There are countless reasons why investors continue to be bullish on crypto despite it being a speculative asset with prices that have nothing to do with any underlying value. But by now, they should already have their eyes wide open. Sure, belt up and take a punt with money you can afford to lose; the only thing you can be certain of is that it will likely be a wild ride. Regulators can only save fervid investors from themselves up to a point.
