2022: a crypto winter akin to 2000’s dotcom bubble

Quick Take: 

  • Some have suggested the recent crypto market turmoil is the “Lehman” moment for the asset class. We believe this crypto winter is more akin to the bursting of the ‘Dotcom’ bubble  
  • In 2000, many tech companies failed but what emerged were companies with true value propositions, strong business models and demonstrable long-term resilience.  
  • The crypto market sell-off poses an opportunity from both an investment and regulatory perspective, with institutions ready to reap the rewards. 
  • We predict that only the strongest companies will survive, with the market becoming more resilient and regulated, with scientific projects and assets proving their worth to institutions. 

 

Just over 20 years ago, a rapid rise in US internet-based companies, burst, an episode etched into many investors’ memories and now referred to as the ‘dotcom bubble’. What resulted was dramatic. The Nasdaq, which rose five-fold between 1995 and 2000, saw an almost 77% drop, resulting in a loss of billions of dollars and a number of prominent companies bankrupted. But with hindsight, clearly something had to give. 

Fast forward to 2022 and commentators are drawing comparisons to this period with the ongoing crypto ‘winter’. Whilst it would be easy to focus on the negative impact of headline events, there is one key reflection LMAX Group firmly believes in. Although there were tech companies that failed in the early noughties, what emerged were the most robust firms in the ecosystem, those with true value propositions, strong business models and demonstrable long-term resilience. We are of the view that as the much-anticipated crypto spring and summer emerge, so will the future crypto success stories.    

Reflection and reconciliation  

Institutions are all too aware of market cycles, having just experienced one of extreme bullishness to now, where a bear market persists and investors and economists fear an imminent global recession. 

However, we believe the current macro environment that is driving a crypto market sell-off poses an opportunity from both an investment and regulatory perspective, with institutions ready to reap the rewards at the next upturn in the cycle.  

Institutions seeking gold  

According to a poll published by Bitstamp in April, 88% of more than 5,500 institutional investment decision-makers said crypto will see mainstream adoption within the next decade. A further 80% of institutional investors said crypto will overtake traditional investments over the period. 

What does this suggest?  

Institutional participation certainly isn’t waning. The most important factor that will support the long-term future of the market will be their involvement. We’re in the early stages of crypto market development, it’s still a nascent asset class - in five years, crypto will likely account for 5% of assets in custody, with the potential to grow to $10 trillion in size1. Naturally, some of the world’s largest institutions want to be front and centre of this growing asset class.  

Developing the crucial framework  

Regulation also has a critical role to play in shoring up the future of the industry. Currently, it has a battle on its hands to explain and define crypto currencies to policymakers and regulators. Ultimately, protecting the end consumer can and should be a priority, but what is crystal clear is that crypto currency, namely bitcoin, is established and here to stay.  

Crypto needs respected global regulators, like the SEC, CFTC and FCA to take the lead in driving regulatory frameworks which will solidify the asset class further. LMAX Group has always advocated for fair and well-regulated capital markets. Appropriate regulation will benefit the market by providing protection to consumers and opening up market access for financial services investors, which in turn will accelerate institutional adoption of crypto, driving us out of this winter and avoiding bursting any perceived bubble. 

Ahead of the curve 

While we may see thousands of the non-mainstream crypto coins go to zero, we will also see a flight to quality both in terms of currency but also companies emerging in a better and more resilient market position, proving their worth to institutions and the financial system as a whole.  

LMAX Digital is part of the LMAX Group, the leading independent operator of multiple institutional execution venues for FX & crypto currency trading.  

We've been at the forefront of the institutionalisation of crypto trading since 2018 - with a 100% exchange uptime - ensuring orderly markets during times of the highest volatility. 

Keep up to date with LMAX Digital, sign-up for the  LMAX Digital News Bulletin  

 


© 2022 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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