Price drop at Bitcoin and Co.: Between crisis of confidence and hope for the future

Price drop at Bitcoin and Co. – between crisis of confidence and hope for the future

One hell of a year is behind cryptocurrency investors: the market capitalization of the biggest cryptocurrencies has fallen by around three-quarters since November 2021, from three trillion to currently $750 billion. Bitcoin is only worth $16,500 instead of around $64,000 back then, and it can’t get out of the low price. Things are not looking much better for other digital currencies, as several spectacular crashes rocked the industry in 2022 – and caused a real crisis of confidence in digital currency.

Apart from the collapse of the supposedly stable digital currency TerraUSD and the Celsius credit platform, as well as a series of small crashes and fraud numbers, this is mainly due to the bankruptcy of FTX: customer deposits on the American crypto exchange would have been used. to fill in the financial gaps of a sister company after it merged with had speculated in various cryptocurrencies. Client money lying with FTX may have offered a remedy – and was missing when they wanted to trade digital coins for real dollars. In the end, according to the media, the damage should amount to around 7 billion dollars.

Hair-raising chaos among industry giants

US authorities are now investigating FTX founder Sam Bankman-Fried, 30, for financial fraud and money laundering. But the findings of the insolvency proceedings outweigh the potentially criminal energy: Neither the books of the multibillion-dollar companies, nor the audited financial statements, complained about insolvency administrator John J. Ray III before the tribunal. Overall, there was a lot of power “in the hands of a very small, inexperienced, ignorant and potentially vulnerable group of people,” Ray said.

Sören Hettler, head of investment strategy and private clients at DZ-Bank, calls such descriptions of the inner workings of one of the largest file-sharing exchanges “hair-raising.” Hettler himself has been a crypto expert for many years and now sees a severe loss of confidence due to a massive lack of transparency in the crypto market: “In many places there are no established regulations , no sufficient reporting requirements, just no numbers”. Hettler said.

Confidence in cryptocurrencies suffers

Trust is what decides the value of any currency – and it should in fact be the heart of Bitcoin and Co.: It is not central banks that would secure the value of money, but the secure blockchain by cryptography, hence the promise. “A cryptocurrency does not require trust in institutions, but rather trust in software code,” says Philipp Sandner, an economist at the Frankfurt School of Finance and Management.

He is one of the strongest supporters of cryptocurrencies in Germany and even certifies that Bitcoin, which has collapsed dramatically, has a long-term future as a store of value that protects against inflation. According to him, the bankruptcy of FTX is not a local problem, only 20,000 of the eight million victims come from Germany. “In Europe and especially in Germany, there are good stock exchanges with the Bafin stamp, which is a success of the local regulations,” explains Sandner.

It is unclear whether prices will recover

However, Hettler points out that regulation does not guarantee high prices: “Restoring credibility and investor confidence is a necessary but not sufficient condition for further price gains. » returns in other asset classes.

“And even if the two changed again, prices don’t necessarily have to rise again,” says Hettler – and sounds almost like the European Central Bank (ECB): Bitcoin is neither suitable as a means of payment nor a due investment the lack of dividends and cash flow generated. “The market valuation of bitcoin is therefore based exclusively on speculation,” ECB economists Ulrich Bindseil and Jürgen Schaaf wrote in a recent blog post.

The technology remains interesting

For connoisseurs like Hettler, other uses of the blockchain are now increasingly in the spotlight, after all it can be used to create unique and therefore tradable digital objects: “Trust in cryptocurrencies has been scratched, but not in the underlying distributed ledger technology,” the banker explains. At DZ-Bank, for example, they are working on a bank money token. In principle, this puts the euro on the blockchain, which can be useful when processing fast and international transactions.

However, Hettler does not want the bank money token to be understood as a real cryptocurrency, although, according to him, DZ-Bank also wants to allow Volksbanks to buy other cryptocurrencies through their customer portal. in a close future. Hettler does not deny that they still have very convinced fans. “However, the objectivity required for a sensible investment decision is lost in many places,” he says, especially when it comes to Bitcoin fans who are still pumping every free penny into the digital currency.