Crypto wild ride throws spotlight on bumpy road ahead

The cryptocurrency market is used to frequent and extreme speculative frenzy with Bitcoin standing as a perfect measure of the wild ride.
And 2022 has been perhaps the most turbulent year investors have ever seen: Trillions of dollars wiped off world stocks, bond market tantrums, whip-sawing currency and commodities and the collapse of a few crypto empires.
Indeed, the cryptomarket has been even more chaotic in 2022.
Bitcoin, the pre-eminent cryptocurrency, has lost 60% of its value, while the wider crypto market has shrunk by $1.4tn, squashed by the collapse of Sam Bankman-Fried’s FTX empire, Celsius and supposed ‘stablecoins’ terraUSD and Luna.
As digital assets lost more than $2tn in value and a string of prominent ventures blew up in 2022, there’s a growing debate over cryptocurrency regulation.
The turmoil also heightened the stakes in a battle that had already been brewing in the US Congress over which of the nation’s top market regulators — the Securities and Exchange Commission or the Commodity Futures Trading Commission — should take the lead on crypto oversight.
The SEC has made clear that it considers most digital assets to be securities, a designation that brings with it an extensive set of requirements, while the top US banking regulators issued a sweeping statement on the dangers of crypto.
The collapse of FTX and the charges of criminal fraud filed against its co-founder, Bankman-Fried, did lead to widespread embarrassment in Congress and among regulators.
He and several other top FTX executives had donated heavily to the campaigns of Democrats and Republicans and taken a leading role in an effort to craft a new regulatory regime that reflected the priorities of some in the crypto community.
Elsewhere, rules adopted by the European Union that have not yet come into effect will seek to regulate tokens that reference another type of asset or act like a digital version of fiat money, like stablecoins.
The UK’s Financial Conduct Authority also regulates digital assets it considers investments that come with rights to repayment or a share in profits. But “payment tokens” like Bitcoin, or “utility tokens” that provide access to a service, remain unregulated in both regions.
Singapore regulates both types but under different laws. It considers coins that are digital representations of other assets, such as unlisted shares, to be securities provided they are offered by an approved exchange.
But upbeat investors in cryptocurrencies have suffered a painful collision with reality after FTX filed for bankruptcy.
While plenty of industry die-hards remain, many professional money managers are saying the case for crypto as a portfolio diversifier or digital gold has been debunked.
As of now, cryptocurrencies have crept into the new year, licking their wounds after the carnage of 2022.
The overall global crypto market cap has risen 5% to $871bn since January 1, but it’s still down over 57% from this time last year.
The world’s biggest cryptocurrency is clearly subdued too, with its 7-day volatility dropping to levels not seen since October 2018, according to Refinitiv Eikon data.
Cryptocurrency spot trading volumes remain similarly muted after slumping about 48% in December versus the previous month to $544bn, their lowest level since December 2019, according to CryptoCompare data.
On the other hand, cryptocurrencies remain at the mercy of macroeconomic headwinds as worries grow around a slowing global economy.
Over the years, the financial world has been growing warier of the highly volatile digital currencies.
Amid regular boom-and-bust cycles, longer term, regulatory scrutiny of the highly-volatile cryptocurrency market is set to get wider.