We are once again at the point where the crypto community, which is otherwise left cold by all forms of investment, is also wringing its tongue. What brought you here?
This feeling is familiar from 2018. The decline has been going on for almost a year, we can remember that in November last year, the market capitalization of crypto-assets reached 3,000 billion dollars, and the price of Bitcoin reached 69,000. Compared to this, today the former indicator is well below 1,000 billion, and the latter is below 17,000 dollars. The number of users and transactions also set one record after another, but today we can trace it with a stick. What happened? It’s extremely simple, the money printing press was abolished, monetary tightening began, as a result of which bad weather greeted all high-risk asset classes, including tech stocks as well as cryptocurrencies. We had to face a serious withdrawal of capital, but this was legal.
In other words, are crypto market movements more closely intertwined with macroeconomic events than ever before?
This can be clearly stated. If, for example, the Federal Reserve, which plays the role of the US central bank, raises interest rates, it essentially immediately brings a fall in the crypto market, but the inflation curve is also a tangible clue. It is worth knowing about Bitcoin’s internal macroeconomic clock that four-year stages alternate. While in 2017 we were waiting for the exchange rate to break through 50,000 dollars, in 2021 we already considered the 100,000 level as a kind of dream limit.
After the second half of the year of unbroken growth, we guessed that the trees would not grow to the sky, I myself expected that the momentum would last until Christmas and the New Year at most.
Compared to this, the moment of stagnation arrived earlier, but there is no question that the price of Bitcoin will fall to zero. Four years ago, crypto-haters were clamoring for an exchange rate of $1,000, and now for 10,000 to 12,000. None of them happened, but it is true that the local low point after the FTX bankruptcy on November 9 also showed the $15,500 level.
What is the main lesson of the FTX case?
In hindsight, when discussing causation, the point is not what kind of avalanche was triggered by Binance’s announcement of the withdrawal of FTX tokens, but how a crypto exchange platform valued at $32 billion could collapse in a single week. It is also thought-provoking where the greed of a 30-year-old boy (Samuel-Bankman Fried, founder and former CEO of the FTX crypto exchange – ed.) led, who was able to accumulate an 8.8 billion dollar deficit in a startup’s unicorn account. For me, this clearly shows that the regulator made a fatal and irreparable mistake, a market growing to 3000 billion dollars rushed past it without barriers or brakes.
It is not known whether the long delay has a convenient or political reason, the regulatory environment must be created anyway, only now with millions of victims behind them.
However, it is also an important lesson for the crypto community not to expect everything from the outside: confirmation, support, regulation. If we want to take ourselves seriously, in addition to “get rich quick”, the good guys must collectively point out the bad guys, using this kind of social responsibility, even filling the necessary oversight gap. In other words, if we notice that someone is running a pyramid scheme hiding behind a suspicious cryptocurrency, it is necessary to draw attention to the fact that this is a scam, and no one should put their money into it. If we dust off the dirt currently stuck on us and get back on our feet, we can return to our original mission and give people back their financial freedom and independence.
All of this sounds nice, but after what happened, the dog doesn’t even need Bitcoin, while there was still a lot of crowding at $60,000. Why?
Mass psychosis, it’s that simple. While the bull market lasts, money flows into everything, everyone wants to make their own luck in the digital casino. Compared to this, when we were already 65-70 percent below the peaks of November last year, I said even then that this was not the bottom of the pit yet, unfortunately I was right. Now, however, we are over a cataclysmic event that fundamentally shook the entire market, we call it capitulation. The archenemies of the crypto scene are now celebrating, saying that the balloon has popped, it turns out that the whole thing is worthless, that there is nothing behind open source digital currencies. We see it quite differently, I am convinced that great lethargy and disillusionment also bring with it a period of quiet accumulation that offers the best boardings. Current crypto-billionaires have accumulated wealth sufficient for generations in previous similar periods.
The well-known capital market expert, Viktor Zsiday, also writes about Wild West crypto situations. What do you say?
It is an honor that Viktor Zsiday is already holding a keyboard in relation to current crypto market events, this also shows how well we are doing in terms of mass adoption. To put it seriously, those who look a little closer at what is happening in the crypto market know that we have not been talking about Bitcoin being money or an international currency for quite a few years now. We used to define it much more as a new investment category, for example digital gold, although recently “tech stocks on steroids” covers the reality much better. It is also important to understand, especially to accept, that the role of centralized companies participating in the introduction of a decentralized system may seem to many to be a ring of wood and iron, but it is now clear that billions will not learn the operation of the system in a self-taught manner, nor will they be able to independently invest the necessary capital into the crypto ecosystem to deliver Of course, no critic can miss the current jump, and with that, it will be worth waiting to see where the continuous interest rate hikes will lead. It is not difficult to see that sooner or later the economy will be killed, there is no budget that is able to finance public debt in the long term under clearly unsustainable conditions. That is why, over time, central bankers will again rush to expand liquidity, and then stocks and cryptocurrencies will gain ground again.
In other words, looking at a positive vision of the future, crypto will lose battles, but will it win wars?
This is a good wording, but now everyone can clearly see how sensitive this system is. Beyond the global problems, the victims also have a Hungarian market player, which was forced to suspend allocations. Although we have weathered the storms of the past few days and weeks, it is difficult to remain optimistic when you see a series of dramatic events and personal tragedies.
At the same time, we believe that the current period is not the one in which the battle-hardened crypto community, which has seen many ups and downs, is dying, but without a doubt we will still be talking about it decades from now.
Those small investors who do not get their money back for years, and there is a good chance that even then only partially, will obviously withdraw, but even this cannot stop the global adaptation of cryptocurrencies.
Bitcoin is usually in the spotlight, while several notable altcoins also step into the spotlight. What are these?
There’s good in every bad thing, so it’s definitely easier to pick altcoins in a bear market. Because while in the bull market, money is often poured into completely unworthy projects, when the business environment is difficult, forward-looking developments also struggle, for the Facebook, Google or Amazon of the future, staying on your feet is at stake. Coins that are able to increase the number of users and generate visible income are worth watching at this time, and in addition, they deliver the previously promised improvements, even if not at the pace that could have been expected in advance. They are expected to beat everyone else in the next bull market. Only Bitcoin has been traded by fewer and fewer people for quite some time now, even if Ethereum is not listed with equal weight, but it is in the other pan at two-thirds-one-third or 80-20 percent ratios. I see that the future belongs to web3 coins, and the most imagination lies in the program codes that can replace traditional financial services, either in terms of commercial banks or the stock exchange. A good example of this is Aave, which is essentially a decentralized lending platform, or Uniswap, which is a decentralized exchange project consisting of smart contracts running on the Ethereum blockchain.
We have already touched on the regulation, where are we in Hungary?
It is to be welcomed that the Blockchain Coalition has now been established from the working group that played the role of the advisory board, in which, in addition to the government representation, market and educational players also appeared. In this way, it is easier for us to get our proposals to the cabinet than if we were just brainstorming among ourselves. The European regulation on the markets of crypto-assets, MICA, has been adopted, and the directive may come into effect optimistically within one and a half years, realistically within two years. This could mean that by 2024 there will be a uniform regulatory system for cryptocurrencies in all 27 European Union member states.
But there is a domestic desire for Hungary to create and launch its own framework before this, which would give domestic crypto market companies a huge advantage, but would also be suitable for attracting more significant foreign capital.
Regulation would not only guide the smaller and larger members of the scene in a much more transparent direction, but it could also open doors to the crypto world for conservative, traditional financial institutions. Thus, it is also not inconceivable that in three years we will not have to compete with other fintech startups for the favors of the crypto community, but with large banks such as OTP or Erste.
(Cover photo: Attila Mogyorósi. Photo: Zsófi Szollár / Index)