Institutional
investors will not return to the crypto market any time soon. The long-lasting
correction is not the only reason they left the market. Fraud charges against
Sam Bankman-Fried, founder of FTX, one of the largest crypto exchanges before
its collapse, made the regulation of the crypto market the hot topic in the
investment world. As a result, market players are closely monitoring the efforts
to regulate stablecoins in the United States.
Nonetheless,
no amount of market regulations could solve the problem of the lack of risk
management in the industry. The expiring year has been marked by the crash of
LUNA which prompted a chain reaction and eventually led to the poor financial
state of Alameda Research which used the client funds of its sister FTX
exchange to cover loses. But the true origin of this chain reaction can be linked
back to the market players themselves as they dived into their exaggerated
greed which made them blind to any kind of caution and wise money management.
Institutional
funds went wild in 2021 when they were pumped into crypto projects and when
money was withdrawn from these funds to be pumped into other projects. All this
was inflated by borrowed money which was used to maximize profits that were
high even without any extra borrowings. Thus, altcoins and blockchains were
flourishing. Investors took the money from Solana to start Terra, then to
launch Near, Fantom and many more making previous projects deteriorate. The
same money was behind every project, with minor capital inflows to the market
in general. The situation became even worse as investors were primarily focused
on one particular fund. When it went bankrupt all its contractors went down
too. Any crooked crypto project could have become a trigger for a domino crash
in the market. So, LUNA became the one to blame.
The troubles
seen within the market in 2022 were directly rooted to the exaggerated optimism
of 2021. To learn from past mistakes, the market must rid itself of this
optimism so these issues will not persist in 2023. Any wild speculations will
not be able to be made until 2024 when the Federal Reserve (Fed) is expected to
stop its monetary tightening and signal
a reversal in its monetary policy stance. Moreover, Bitcoin halving in the
first months of 2024 may signal another crypto bonanza, signaling to the crowd a
less inflationary nature of cryptocurrencies.
It is hard
to say what could be the next driver for the crypto market in the future as
DeFi and non-fungible tokens (NFT) failed to reach the best of their
possibilities and few investors will reenter this pyramid. The new Web 3.0
projects that will become a big tech influence “killer” in the crypto market
could be a potential game changer. But will a sound and fully automated
infrastructure platform be able to be created which will be accessible to
everyone and where users can control all processes? This remains the big
question. Anyway, enthusiasts that will try to get profit from token sales will
certainly surface.