At a glance
By Amy Fallon
If you ask any cryptocurrency trader about the turbulence of 2022, you may be met with a laugh.
“That is a joke in the crypto industry – that the media write crypto is dead,” says Henrik Andersson, co-founder and chief investment officer of digital assets fund Apollo Crypto.
“We laugh, because they have been writing that for the past 10 years.”
For the crypto industry, 2022 was a year of chaos. The collapse of crypto exchange FTX and other big players crushed crypto prices, tarnished the industry and has prompted an ongoing crypto crackdown in the US, Australia and beyond.
In their wake, Bitcoin prices fell to their lowest levels since the height of the pandemic (see Figure 1), and venture capital funding dropped.
In 2024, the market is up – so far. So, where is crypto headed, and what is driving it there?
The spot ETF effect
In January, the US Securities and Exchange Commission (SEC) approved the first US-listed spot exchange-traded funds (ETFs) to track Bitcoin, helping to fuel its recovery. (Spot ETFs track the current, or “spot”, price of a specific asset, while other types of ETFs might follow future prices.)
Andersson sees the approval of the spot ETFs for Bitcoin as a turning point.
“Crypto has been pronounced dead many times. The approval was a watershed moment for the industry because it makes it so much easier for wealth managers, advisers and others to put client money into crypto,” he says.
According to a December 2023 research paper from Apollo Crypto, there could be a US$65 billion (A$98.1 billion) in inflow to Bitcoin ETFs in the coming cycle, based on their 2021 figures. If this were to happen, Bitcoin could trade up to US$200,000 (A$302,000), the paper says.
An Ether spot ETF approved by the SEC may also be on the cards in the coming months. “At some point, it will happen,” Andersson says.
This is an opinion shared by Adrian Forza CPA, director of cryptocurrency tax advice firm Crypto Tax Australia, who calls 2022 a period of “hibernation” rather than a death and says it has led to new beginnings.
New beginnings
“There were a lot of new projects that came out in 2022 with new ideas and new ways to interact with blockchain applications,” Forza says.
“In the background, there were obviously a lot of projects that died off, but there were also a lot of projects that were improving their protocols and systems during the bear market.”
Forza lists Aave, Solana, Lido, Uniswap and Thorchain among the projects that emerged in 2021 and 2022.
“There were new developments, new projects, new things you can do, processes and protocols, non-fungible tokens (NFTs), gaming and re-staking and real-world assets,” he adds.
Over the next year, Forza believes that financial planners and investment managers will recommend Bitcoin, Ethereum or other crypto products as part of their diversified portfolios.
"Crypto has been pronounced dead many times. The approval was a watershed moment for the industry because it makes it so much easier for wealth managers, advisers and others to put client money into crypto."
Jemma Xu is the co-founder of Singularity, a protocol that aims to facilitate compliant access to decentralised finance, or “DeFi”, while ensuring commercial confidentiality for all on-chain transactions.
Xu is also currently working on a project scheduled for launch in mid-2024.
“I think, from a builder perspective, there has been a continuous uptrend, while the prices have been a lot more volatile,” Xu says.
Speculating on trends, Xu says she is a “big fan” of zero-knowledge proofs.
“Building with zero-knowledge technology requires significant technical expertise and understanding the nuances of what can and can’t be achieved,” Xu says. “I think that is why, as a narrative, it has been difficult for the general public to grasp. I think it is ripe to do well in the next few years.”
Liquid staking and re-staking are also very hot topics, Xu says.
Crypto regulation
Forza says that with 20 products worldwide launching every day, it can be hard to keep up with developments in the crypto world. In terms of regulation, he adds, there is a need to ensure a balance strong protection of investors and cryptocurrency investment with the ability for people to be able to invest.
The need for balance remains a pertinent issue.
In an address at Blockchain APAC’s Policy Week in March 2024, ASIC commissioner Alan Kirkland referred to the “regulatory trilemma”, which “puts forward the idea that supervision of financial innovation can at best achieve two of the following three objectives” – consumer protection, market integrity and encouraging financial innovation.
"I think, from a builder perspective, there has been a continuous uptrend, while the prices have been a lot more volatile."
“But ultimately the challenge of good regulation is to strike a workable balance between all three,” Kirkland said.
“In ASIC’s view, regulation and enforcement help to foster trust – and trust is essential to every part of the financial system – crypto and decentralised finance included. A system with limited oversight, that is opaque, unpredictable and unreliable – leading to widescale investor losses or market manipulation or abuse – will ultimately fail to thrive.”
Andersson believes there is no doubt we will hear that crypto has died again at some stage. He stresses that, to understand cryptocurrency, it is essential to realise that it is a “core innovation” that cannot disappear.
“It is a real invention, and it creates a lot of value and financial freedom for a lot of people,” he argues.
