While the past year rocked the crypto industry, the challenges the industry faces today are not fundamentally new. Since its birth, crypto has been questioned – in terms of its legitimacy and potential risks, as well as general skepticism – but this isn’t dissimilar from the early-stage adoption of other emerging technologies that later became fundamental parts of society, like the internet. While the FTX fallout and its implications have made the distrust in the short-term louder, crypto is here to stay and there are good players in the space to move the industry forward. Crypto investors who remain positive will see cryptocurrency fulfill its promises, and the strongest industry leaders will go on to build revolutionary products that we likely can’t even imagine today. So, how do we get there?
Restore trust in the industry and build back confidence through transparency
Customers have undoubtedly shied away from crypto in recent months – on the institutional and retail level. To rebuild trust with investors, education will be key. Clients need to better understand the different crypto offerings on the market – so they can distinguish which ways are safe to enter the asset class and what actually makes certain crypto offerings trustworthy and reputable. Crypto providers should take on this responsibility to educate clients. This means having open, ongoing conversations about product structure and whether or not products are regulated.
With FTX, we saw a lot of blind trust. These days are over, and clients will expect providers to better detail how investors’ funds are held, issue proof-of-reserves and proof of over-collateralisation. The industry must lean into this and pave the way forward with transparency providing customers with all possible information, offering explanations and increasing educational capabilities to ensure clients feel supported through this journey forward.
Implement lessons from the last year – like only operating within regulatory guidelines
While the underlying blockchain technology behind bitcoin and crypto remains solid, it has become apparent that there was some fluff in terms of the products and offerings that emerged in the last bull market. These products – which were not regulated ultimately led to distrust, loss of funds and bankruptcy. As an industry, we need to build better products within regulatory guidelines and hold ourselves accountable.
In the near term, the FTX debacle will accelerate crypto-self regulation. Beyond this, operating only within clear regulatory guidelines will mitigate mismanagement in the industry to avoid history repeating itself.
Progress into the new year with optimism
With 2023 here, many are asking what the future holds. While this crypto winter will be a cold one, we anticipate a lot of growth to come out of this time. Bear markets are the best time to build, and companies who can maintain that focus and stay optimistic will emerge stronger.
Looking at prices and inflows, it is clear that people are still using crypto – trust hasn’t been shaking to the core, but there are valid expectations for more transparency in the future. Investors and potential investors should feel empowered to ask questions and use this time to learn more about the industry fundamentals so they can be invested in an educated, strategic manner. In the next year, we’ll need transparency and collaboration between regulators, investors, and clients to progress forward.