Why Could It Be Headed To An Ice Age Instead Of A ‘Crypto Winter’ After Coinbase Losses?

Trading volumes on one of the world’s leading cryptocurrency exchanges fell by 44 percent in the first quarter of the year, as the mood in the cryptocurrency market continued to subside.

Shares on Coinbase, the largest US cryptocurrency exchange, fell 15.6 percent overnight on Tuesday after posting a net loss of $430 million (£348 million), much worse than analysts had expected.

The main loss for the company, which went public in April 2021 due to strong appetite for cryptocurrencies such as Bitcoin, was in trading fees, which has reduced revenue by 35 percent for the year.

Coinbase noted the “low trend in crypto-asset prices and volatility that began in late 2021,” but quickly indicated that it does not expect these conditions to be “permanent.”

The news raised questions about whether the market has reached an expected cooling-off period – formerly called “crypto winter” – or a perpetual cold, perhaps the “crypto ice age”.

Bitcoin is currently trading at its lowest price in 2022 at $31,000 (£25,140), less than half of what was traded in November 2021.

The trajectory of Ethereum, another popular currency, coincides with the 13 percent drop in the price of Bitcoin since last week, while the performance of some other major cryptocurrencies, including Solana and Terra, has been worse.

“The worry now for crypto-asset investors is when the slippage will end,” said Simon Peters, crypto market analyst at trading platform eToro.

“The market is caught in a broader plight of investment markets struggling to set comfortable levels in the wake of rising interest rates designed to quell spiraling inflation across the Western world.”

Increased interest rates by central banks around the world have made investors fear the risks associated with searching cryptocurrencies for safer ports.

However, there are concerns that the cold could continue beyond the usual boom-and-bust cycle – or “bear and up” – in broader financial markets.

In January, when bitcoin was trading at more than $42,000, Paul Jackson, head of global asset allocation for Invesco, said the cryptocurrency could follow the path of a “typical financial mania.”

“Bitcoin’s mass marketing reminds us of the activity of stockbrokers in the lead-up to the 1929 crash,” he added.

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The big players are coming – but winter is coming

It is ironic that the ‘crypto winter’ has begun at a time when major financial players are taking it seriously. On Wall Street, JPMorgan Chase, Morgan Stanley, and Goldman Sachs are among the companies with dedicated cryptocurrency teams. Major hedge funds, run by the likes of Alan Howard and Paul Tudor Jones, are pumping billions into digital currencies.

Even at Coinbase, it’s not just speculative amateurs – “retail investors” – who buy and trade bitcoin. The platform said its institutional clients now account for 50 percent of the assets traded there, and institutions traded $1.14 trillion in crypto in 2021, up from just $120 billion in 2020.

Regulators are also playing catch-up, but only now are they waking up to see the full extent of the unintended consequences of a ballooning cryptocurrency market — which is now shrinking — for free.

Just this week, US Treasury Secretary Janet Yellen made fresh calls to Congress to allow regulation of “stablecoins” — digital currencies pegged to fiat currencies, including TerraUSD — to maintain “financial stability.”

The Biden administration has long been eyeing a federal strategy to detail the risks and opportunities of using crypto assets.

Meanwhile, European regulators agree that many crypto assets remain risky and speculative, can change in value quickly and be subject to “strong promotion.”

In the UK, there has been some criticism of regulators, both when it comes to creating a framework for how companies with crypto assets operate, and what powers regulators have to clamp down on fraudulent activity.

This did not stop the Financial Conduct Authority [FCA] As of only 33 “workable” crypto companies so far. “Many people were turned away because they didn’t have enough provisions to prevent the damage, or even identify it in the first place,” Fiat Chrysler Automobiles CEO Nikhil Rathi said. “We need to draw clear lines.”

He later added: “As we have always warned, if you invest in cryptocurrency, you need to be prepared to lose all your money.”

Some of the provisions in the Queen’s speech are intended to target those using crypto assets to conduct fraud, but little has been said about how to protect individuals who choose to invest in them.

Swinging from the regulatory hammer could slide cryptocurrencies even further, while quick decisions could preserve whatever inherent value is present. The future is unclear: a short winter respite or an ice age appears to end with a possible one. No single currency or platform will be able to stay well aloof from it.

Those interested in trading it, at least, remain hopeful for now: Coinbase even signed its contributor letter with #wagmi, a popular moniker among the crypto community that stands for “we’ll all make it happen.”

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