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Significant Volatility, Cyclicality Seen Within Relatively Small Crypto Market: CEO

Significant Volatility, Cyclicality Seen Within Relatively Small Crypto Market: CEO

There is bound to be significant volatility and cyclicality within the crypto industry as it is still a relatively small market, noted Peter Smith, co-Founder & CEO,

Speaking on the future of cryptocurrencies at ‘Qatar Economic Forum, Powered by Bloomberg’ on Thursday Smith said, “2023 has been largely positive for the industry. If you look at ‘year to date’ returns, the digital assets class would be the strongest performing asset class in the financial markets with about 45% on the year, so far.”

He said it was worth discussing what happened to the crypto industry last year.

“In the crypto industry, we experience an incredible cyclical market with a roughly four-year cycle. One of the reasons for its cyclicality is that it's still a relatively small market. If you combine the total value of all major cryptocurrencies in existence today, it amounts to approximately 0.6 times that of Apple.

“Consequently, there is bound to be significant volatility and cyclicality within this market. What made 2022 unusual was the occurrence of numerous counterparty failures and company collapses within the crypto space, with one of the most notable examples being FTX (a company that formerly operated a cryptocurrency exchange and crypto hedge fund)."

Smith noted, “2022 was the crypto version of the great financial crisis, but it turns out that without a federal bank to backstop, the impact was much more volatile. In crypto, there is no overnight window, and you are completely on your own.

“This means that only the strongest players will survive. If you look at the 12 most valuable companies in crypto a year and a half ago, only four of us are still standing."

Talking on growth markets, he noted, “The biggest growth we are seeing on the consumer side is ‘rest of world’ markets. We are growing very quickly in Nigeria, Ghana, Colombia, Argentina. We also grew a lot in Ukraine because we made our service entirely free in Ukraine. We have seen a lot of growth in these markets, which is mainly driven by stable points’ usage.”

Smith said, “We are incredibly active in the institutional business today and have picked up a lot of market share over the last six to 12 months [primarily through consolidation].”

He said, "One of the most robust price movements we witnessed this year was when US banks started failing. I believe that if the US government defaults, we will probably see a quick pullback and then a very strong upward push in the crypto market."

“The trend has been positive for crypto globally. We have gotten closer and closer to regulatory certainty. Crypto in the US has now become a bit of a political issue, because there are a few people in the Democratic Party who have certain views on it.

Within the US you have the SCC, which is probably what people refer to as being hostile, then you have state regulators, who are very collaborative, you have the CFTC, that is very collaborative, the Treasury is a collaborative regulator, so the US is very nuanced and complicated regulatory environment for financial services companies.

Compared to Singapore, who has one central regulator, the US has some 57 regulators to regulate financial markets, so it is impossible to categorise whether they are hostile or friendly.”

Smith added, “I would be genuinely concerned if there were fewer developers contributing to open-source crypto projects today compared to three years ago. In each cycle, we have observed a slight decline in the number of contributing developers, and it is something we closely monitor.

“However, in this current cycle, we are actually experiencing growth in the developer community, even in 2022. 

As I mentioned earlier, the crypto industry is still relatively small today. If we aspire to be significant in the future, we need substantial development efforts. Without active contributors, our potential value in the future would be limited. Therefore, one of the most encouraging aspects of the crypto market today is the genuine growth and development of our community.”