Maximizing opportunities in a crypto bear market

Quick Take: 

  • The global macro environment is currently weighing on the sector, but opportunities are there to build a better ecosystem 
  • Regulatory frameworks emerging in Europe with positive ramifications for the rest of the world 
  • Institutional investment, discipline and focus will lead us out of the ‘crypto winter’ 

Despite the current global macro environment, there are still opportunities for digital assets, particularly where market participants can combine the fundamentals of traditional finance with the imagination and creativity of crypto. In addition, regulatory progress is being made with the introduction of European regulations which have been passed to protect retail investors and grow this nascent asset class. 

With a market cap of $1 trillion, the digital assets sector has not stood still, with significant announcements from leading global institutions in the past few months to invest, clear, trade and store crypto. It feels inevitable that the market has the potential to grow to $6 trillion over the next 2-3 years with the right support. That may sound like a big leap, but there are $7 trillion foreign exchange trades every day and with total global assets of $200 trillion, we believe a $6 trillion crypto market is eminently achievable. 

Big names are entering the digital assets space and every bulge bracket bank is exploring ways to access the market within compliance constraints, with one just this month announcing its storage capabilities. With all this activity, others will follow, for fear of losing out. Whilst we anticipate that it will be a tough 6-12 months ahead, we are still of the firm belief that a time will come when crypto will be as easy to access as the gold market. 

Regulatory green shoots 

Current blockages to greater crypto investment include credit access and regulatory determinism, but with the European Commission passing the landmark Regulation on Markets in crypto-assets (MiCA) earlier this month, there is greater pressure for other international regulators to follow.  We have long argued that regulatory determinism is needed to encourage the adoption and growth of digital assets and at the heart of this is the protection of retail consumers.   

There is still an urgent need for retail protection in markets outside the EU and despite moves in this direction, it is yet to appear in the US or the UK. If they don’t move soon, the global hub for digital assets may well be located somewhere beyond the two main global financial centres of New York and London. 

Institutional investment is key 

Although retail protection is key to growth, we believe the weight of institutional investment will help lead us into a ‘crypto spring’. With the current macro uncertainty, we are not there yet, and we can’t see much to drive the market up in the short term over the next six months. It is not all doom and gloom though, despite the current headwinds, LMAX Group has seen a 20% increase in its client base, and we are firm in our belief that once the market starts to move upwards again, the foundations for future market growth will be stronger than ever. What we are seeing is a more diverse, institutional and solid digital assets’ ecosystem which has continued to grow over the past twelve months and will be well placed to capitalise when the bull market returns.   

Discipline and focus 

The best companies are built during periods of lower activity, but these are the ones with a singular focus. This is true regardless of which part of the capital markets’ sector you are operating in – crypto is no different. Only with a core idea, focus and discipline will crypto firms continue to operate and have the longevity into the next ten years and beyond. 

LMAX Digital is part of the LMAX Group, an 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    

This post is commissioned by LMAX Group and does not serve as a testimonial or endorsement by The Block. This post is for informational purposes only and should not be relied upon as a basis for investment, tax, legal or other advice. You should conduct your own research and consult independent counsel and advisors on the matters discussed within this post. Past performance of any asset is not indicative of future results.

© 2023 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.