The digital asset industry has seen nearly US$2 trillion in market value wiped out over the last several months — a staggering US$300 billion during the week of May 9 alone — but some crypto watchers see this moment as an opportunity for the sector to reset and evolve into the next phase.
"We were seeing a lot of good money being thrown at bad projects," says Erica Pimentel, crypto researcher and assistant professor at the Smith School of Business at Queen's University. "This moment makes us think twice about which companies are really the 'blue-chip' ones we want to get behind. A lot of projects that shouldn’t have been funded in the first place are going to be the ones that are not going to be here in a year."
Pimentel also sees this period as a great consolidation opportunity for more established firms, giving smaller, newer and higher quality crypto businesses and projects a boost.
"Companies that really have good market economics, good fundamentals and good ideas that may not have been able to raise as much money a month- or two months ago," she explains.
The whipsaw in the crypto market can be partly blamed on the combination of soaring inflation, interest rate hikes and Russia's invasion of Ukraine. But the broader equities sell-off also played a major role.
As the market matures, Bitcoin and other cryptocurrencies have been behaving increasingly like stocks and tumbled this month in step with global markets.
Pimentel says the impact of these events on the crypto market is a clear indication that the industry is becoming more mainstream.
"Crypto is no longer an isolated phenomenon," she says. "It’s no longer a small ecosystem. It’s becoming more and more integrated with the global financial structure and is (therefore) not insulated from global risks."
Another part of the equation is the collapse of stablecoins TerraUSD and Terra Luna, which sent shockwaves throughout the crypto market.
Stablecoins are used to facilitate crypto trades — traders who are looking to buy crypto can exchange their regular dollars for stablecoins in order to make their crypto purchase. Stablecoins are supposed to be less volatile compared to digital currencies like Bitcoin because they are tied to reserve assets like the U.S. dollar or gold, so their sudden decline was unexpected.
Despite the decline in the digital asset market, Canadian crypto companies say they still see opportunity for growth and their 2022 plans are intact.
"We’re not fazed by these price movements even though they might be alarming to outsiders," says Brian Mosoff, chief executive at Ether Capital, a Toronto-based firm that provides investors with exposure to the Ethereum ecosystem. Ethereum is a platform built on the blockchain where transactions are made with tokens called ether, but also allows users to do much more than transfer money.
Like Bitcoin, which is hovering around US$30,000 levels currently, Ethereum has taken a big hit, losing nearly 60 per cent of its value since late last year, but Mosoff says his firm is moving forward and is focused on Ethereum "staking," a process that involves locking amounts of ether up for a period of time, receiving rewards for doing so and ultimately strengthening the Ethereum network so it is more secure, efficient and scalable. The staked ether essentially becomes a revenue-generating asset like a government bond.
"We remain very bullish on Ethereum," he says. "Eye on the prize is five to 10 years from now."
While Mosoff has no definitive sense of how long the market decline will last, he is not shying away from the possibility of a one-to-two-year crypto bear market.
Vancouver-based WonderFi Technologies, which recently acquired crypto exchange Bitbuy and is in the midst of closing its acquisition of crypto asset dealer Coinberry, sees the market crash as a chance for the company to accelerate its consolidation plans and potentially add more businesses into its portfolio.
Meanwhile, Calgary-based crypto trading platform National Digital Asset Exchange (NDAX), which began operations in the middle of the 2018 crypto bear market, says it is not delaying or halting projects and announcements, and is preparing to launch decentralized finance (DeFi) and non-fungible token (NFT) products.
At the same time, there are some financial challenges that could come into play for crypto businesses, and some companies are openly recognizing that.
Billionaire Mike Novogratz's Galaxy Digital Holdings, which trades on the S&P/TSX and offers Canadian products, said in a release on May 13 that it is expecting a US$300 million loss in net comprehensive income "in light of recent market conditions."