Why Bitcoin could be headed for ice age rather than 'crypto winter' after Coinbase losses – iNews

Trading volumes at one of the world’s leading cryptocurrency trading platforms fell 44 per cent in the first quarter of the year, as the mood around the crypto market continues to cool.
Shares in Coinbase, the largest crypto exchange in the US, dropped 15.6 per cent overnight on Tuesday after it posted net losses of $430m (£348m), far worse than analysts were expecting.
The main loss for the company, which went public in April 2021 on the strength of appetite for cryptocurrencies such aS Bitcoin, was in trading fees, which sent revenues down 35 per cent for the year.
Coinbase cited a “trend of both lower crypto asset prices and volatility that began in late 2021”, but was quick to point out that it does not expect these conditions to be “permanent”.
The news has raised questions about whether the market has reached an expected cooling-off period – previously dubbed a “crypto winter” – or a more permanent chill, perhaps a “crypto ice age”.
Bitcoin is currently trading at its lowest dollar price in 2022 at $31,000 (£25,140), less than half what was trading for in November 2021.
The trajectory of Ethereum, another popular coin, has matched Bitcoin’s 13 per cent price fall since last week, while some other leading cryptocurrencies including Solana and Terra have fared even worse.
“The concern now for cryptoasset investors is when the slide will end,” said Simon Peters, a crypto market analyst at trading platform eToro.
“The market is caught in the wider adversity of investment markets that are battling to decide where confortable levels are in the wake of interest rate hikes designed to quell soaring inflation around the Western world.”
Interest rates hikes by central banks around the world have made investors who are fearful of the risk attached to cryptocurrency search for safer harbours.
However, there are fears that the chill could last beyond the usual boom and bust – or “bear and bull” – cycle in the wider financial markets.
In January, when Bitcoin was trading for more than $42,000, Invesco’s global head of asset allocation, Paul Jackson, said that the cryptocurrency could follow the trajectory of “a typical financial mania”.
He added: “The mass marketing of Bitcoin reminds us of the activity of stockbrokers in the run-up to the 1929 crash.”
It is ironic that the “crypto winter” is setting in just when the big financial players are taking it seriously. On Wall Street, JPMorgan Chase, Morgan Stanley and Goldman Sachs are among the firms with dedicated cryptocurrency teams. Mainstream hedge funds, managed by the likes of Alan Howard and Paul Tudor Jones, are pouring billions into digital currencies.
Even on Coinbase, it is not just speculative amateurs – “retail investors” – who are buying and trading bitcoin. The platform said that its institutional customers now account for 50 per cent of the assets traded there, and institutions traded $1.14tn in crypto in 2021, up from just $120bn in 2020.
Also playing catch-up are regulators, only just now waking up to see the full extent of the unintended consequences of a ballooning – now shrinking – crypto market running free.
Only this week, US Treasury Secretary Janet Yellen made fresh calls for Congress to authorise regulation of “stablecoins” – digital currencies pegged to a traditional one, of which TerraUSD is one – to maintain “financial stability”.
The Biden administration has long been eyeing up a federal strategy to detail the risks and opportunities of using crypto assets.
Meanwhile, European regulators agree that many crypto assets are still very risky and speculative, liable to change in value quickly and subject to “aggressive promotion”.
In the UK, there has been some criticism of regulators, both when it comes to establishing a framework for how companies with crypto assets can operate, and what powers regulators have to clamp down on fraudulent activity.
That has not stopped the Financial Conduct Authority [FCA] only deeming 33 crypto companies “fit to operate” so far. “Many were rejected as they had inadequate provision to prevent harm, or even identify it in the first place,” said the FCA’s chief executive Nikhil Rathi. “We need to draw clear lines.”
He added later: “As we have consistently warned, if you invest in crypto, you need to be prepared to lose all your money.”
Some of the provisions in the Queen’s Speech will aim to target those who use crypto assets to conduct fraud, but little has been said about how to protect individuals who chose to invest in them.
A swing from the regulatory hammer could send cryptocurrencies sliding even further, while swift decisions may preserve any inherent value that is there. The future is unclear: a brief winter break or an epoch-ending ice age both seem possible. There is no individual currency or platform that will be able to stay well insulated against it.
Those concerned with trading it are, at least, staying optimistic for now: even Coinbase signed off its shareholder letter with #wagmi, a popular epithet among the crypto community that stands for “we are all gonna make it”.
All rights reserved. © 2021 Associated Newspapers Limited.

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