Crypto executives and regulators seem to agree on one point although they may often don’t see eye to eye, that the recent crypto market turmoil could benefit the industry by filtering out unsustainable projects and bad actors.
At least that was the prevailing consensus at the inaugural Point Zero Forum in Zurich last week, an invite-only gathering of investors and policymakers that took place.
According to CoinGecko data, crypto’s total market capitalization is about $1 trillion, down from an October high of $2.7 trillion.
Ravi Menon, managing director of the Monetary Authority of Singapore, said at a panel on the future of financial services on Wednesday, “There’s a bloodbath going on,” referring to the billions of dollars and companies leaving the market.
According to Menon, the exodus could help weed out bad actors.
“This is not necessarily bad,” Menon said. “For a regulator, a central bank, it’s a great opportunity to separate the wheat from the chaff.”
Jon Cunliffe, a deputy governor at the Bank of England also on the panel, likened the market crash to the dot-com bubble, in which excessive speculation led to inflation of U.S. tech stock valuations in the 1990s before the bubble burst in 2000.
“A lot of companies went, but the technology didn’t go away, and it came back 10 years later,” Cunliffe said, pointing to survivors such as Amazon. “So whatever happens over the next few months to crypto assets that people trade, I expect crypto technology and finance to continue.”
Due to the recent market meltdown, the growing urgency for establishing regulations for the industry was highlighted.
U.S. Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) introduced on June 7, a wide-ranging bill that would govern crypto-asset service providers and include detailed disclosure requirements for stablecoin issuers due to Terra’s downfall.
The European Union’s Markets in Crypto Assets (MiCA) bill is going ahead with the legislative process and the U.K. announced in April that it was planning to regulate stablecoins under existing payments legislation and introduce a regulatory package for crypto.
Agustín Carstens, general manager of the Bank for International Settlements, a central bank-owned financial institution, said during the conference in Zurich, that crypto firms and regulators need to put the effort into making the industry more sustainable,
“The degree of leverage in many of these transactions is completely abnormal,” Carstens said. “You cannot defy gravity. You are running an extremely risky operation. If something goes a little bit wrong, the possibility of crashing is very high.”
Many crypto heavyweights at the panel said the market crash was a welcome correction.
“I welcome this downturn,” Kris Marszalek, CEO of digital assets exchange Crypto.com, said. “This is the time to demonstrate how the real [companies in crypto] can continue building [and] be the steady hand, the calming voice, during volatile times and just deliver real value.”
Changpeng Zhao, CEO of Binance, the world’s largest crypto exchange by volume, during the panel has suggested that crypto entrepreneurs need to have a clear business model.
“If you’re only getting users because you’re using incentives to attract users, that’s not a real business model. Eventually, you’re going to run out of money and you will crash,” Zhao said during a panel on Wednesday.
The industry will take a long time to recover but “the worst part is probably over,” Zhao said.
According to Brad Garlinghouse, CEO of fintech Ripple Labs, the downturn could weed out tokens that have no utility: “I think the vast majority of tokens will go away over a period of time, because I can’t figure out the utility … Dogecoin is a clear example of [something that was] never designed with utility, the founders have left the project [and] it moves based upon the tweets of Elon Musk.”
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