Crypto's Tumultuous Year: Is There Reason To Be Bullish in 2023?

A pile of cryptocurrencies
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By Eddie Hui, Chief Operating Officer of MetaComp

Far from the optimism we saw in 2021, the crypto industry has been singing a different tune after a tumultuous year. Littered with prominent scandals from the collapse of Terra and Three Arrows Capital to FTX, as well as a staggering over US$3 billion stolen in hacks as of the start of Q4 2022, marking a new record high, uneasiness has reverberated through the industry. Compounded by the ongoing crypto winter, the lingering effects of such incidents have resulted in investors seeing staggering losses of over US$2 trillion since the crypto market peaked one year ago, stoking even greater uncertainties.

Despite these scandals, there are still reasons to be bullish in 2023. Continued interest in the role of digital assets from traditional and emerging financial players as well as support from institutions suggests that optimism is certainly prevailing in Asia. As Asia catalyses the next wave of growth in the digital asset economy, how will it shape the future of finance? And will adoption be driven by the very financial giants that the blockchain industry sought to disrupt?

Once Bitten, Twice Shy

Today, Southeast Asia leads the world in crypto adoption, with Asia home to six of the top 10 countries for crypto adoption. While some regulators in the region have approached the space with trepidation, growth has hardly stagnated. In fact, crypto and blockchain-focused funds have thrived across financial hubs such as Singapore, Hong Kong, and South Korea in the past year.

This points to Asia’s long-standing appeal among digital asset entrepreneurs and innovators, in large part due to its pro-technology business environment, digitally-savvy population, and a rich talent pool. In emerging markets, the draw is even greater due to crypto’s intersection with broader fintech innovation and thus, as a key vehicle in fostering financial inclusion.

However, ‘pro-crypto’ jurisdictions have begun to clamp down on the sector, all in the name of strengthening long overdue consumer protections. Even Singapore, once hailed as Asia’s crypto haven, casts greater scrutiny towards the space, especially following the demise of Singapore-domiciled Terra Foundation and Three Arrows Capital. Last month, in an attempt to promote crypto as a tool for innovation instead of speculation, the Monetary Authority of Singapore released consultation papers proposing bans on borrowing funds for crypto purchases and the use of customer funds for crypto lending, and broader restrictions on retail trading.

Meanwhile, jurisdictions that have seen a great deal of crypto usage in recent years are beginning to recognize the need for established regulatory frameworks. Indonesia announced its plans to tighten its reins over the crypto market while Southeast Asia’s largest market for crypto adoption, Vietnam, also voiced intentions to regulate digital assets.

This is compounded by FTX’s collapse. The seemingly pro-regulation rhetoric espoused by its leadership contributed to its rise, market dominance and respect. Now, seeing it for what it truly was — as nothing but smoke and mirrors — the swift and monumental collapse of a “too big to fail” crypto giant has forced policymakers to reckon with reality.

Simply put, there is a need for more guardrails to protect retail investors and minimize the extent of such fallouts. Despite being once bitten, twice shy, policymakers still need to strike a delicate balance between preserving the future of digital asset innovation and protecting investors and the economy at large.

Unwavering Institutional Interest

Bad actors aside, traditional institutions have to embrace the burgeoning digital asset industry or risk becoming obsolete in the race to future-proof finance. Institutional investors are taking a long-term view of digital assets despite the current bear market and building the infrastructure to gradually support its use in the years to come.

Market conditions have led to a notable shift in crypto’s overall market structure. Asian institutional investors remain the most accepting of digital assets with 69 percent of surveyed respondents allocating funds to the sector. Most recently, we’ve seen a renewed openness towards tools and infrastructures once deemed too risky for the TradFi space. In early November, as part of a series of industry pilots pioneered by the MAS, we saw the very first trade of tokenized government securities and bonds on permissioned DeFi liquidity pools conducted by banking giants.

Unfazed by the crypto market upheavals, traditional institutions are making inroads into the sector, finding ways to streamline and impose order on the expansive crypto universe. For example, Goldman Sachs recently released a data service to classify digital coins and tokens, standardizing tracking and investing in digital assets so institutional investors can better understand the new asset class. Even in the phase of uncertainty in the crypto market, the unwavering institutional support is evidence of crypto’s defining position in the future of finance. 

Championing Cohesive Collaboration

Crypto’s libertarian underpinnings have undoubtedly shaped the values of the industry — but its past is not necessarily its future. As the digital asset gains mainstream momentum, it’s clear that the industry can no longer comfortably sit in the “digital wild west.”

Unfortunately, stricter regulations can seem overly antagonistic, placing crippling limitations on the sector’s growth. Earlier in the year, the crypto industry lobbied against India’s onerous crypto tax that was seen as a compromise from a harsher government stance. Beyond Asia, crypto players sought to push back a proposal aimed at building resilience for Treasury markets at large in fears of increased legal risks to themselves.

The truth is that only through cohesive collaboration and a growing understanding between innovators, can entrepreneurs, policymakers, and regulators foster a safer and stronger digital asset market. Beyond that, it is on crypto firms to pursue integrity and practice transparency as a means of self-regulation, setting reputable digital asset institutions apart from flimsy upstarts.

Crypto’s lackluster 2022 is a reminder of the nascency of the industry. A long road lies ahead: the crypto community must once again confront a crisis of confidence and rebuild the trust lost. Asia has crafted a blueprint for digital asset success — with its balance between crypto adoption and regulatory scrutiny — that could be the very answer to creating a more bullish sector in the year to come.

About the Author

Eddie Hui is the Chief Operating Officer at MetaComp. Based in Singapore, Eddie has over 20 years of experience in the financial industry, working for Société Générale for the bulk of his career. In 2008, Eddie started working in front office functions, successively occupying the roles of COO for the Proprietary Trading activity, COO for Fixed Income, Credit and FX, COO for Prime Services, and more recently COO for the Equity Market Making desk, operating out of Hong Kong. Eddie's experience in traditional finance and his passion for cryptocurrencies enable him to bridge the gap between these two environments as he engages with institutional clients on behalf of MVGX. Eddie graduated in 1999 from ENSEEIHT (Ecole Nationale Supérieure d’Electrotechnique, Electronique, Informatique, Hydraulique de Toulouse) with a Master of Science in Engineering.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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