The crypto winter continues to hound the industry, with Ethereum tumbling today as some less than stellar headlines weigh the industry down. It is important to remember that the technology and innovation behind crypto still retains enormous institutional faith. The recent calamities, such as the collapse of Luna, reveal hidden opportunities.
Abra CEO Bill Barhydt said in an interview with Coindesk, “I think the correlation to the wider downturn will end sometime in the second half as the Fed tries to help subside some of the fear that’s building by saying that they’re not going to raise rates and tighten credit as fast as we initially thought they would. They don’t yet seem to fully realize what’s happening in the tech slowdown. Once they do, I think that the outlook for crypto and tech investing will become extremely bullish.”
Barhydt does not think Luna’s collapse was a nefarious plot or deep scam, so much as a flaw with the algorithmic nature of the pegging was set up. “It doesn’t mean that an algorithmic stablecoin is impossible. It just means, at the very least, that the way it was implemented using an unstable, new, illiquid asset as the base asset for the synthetic asset is not a good idea.”
At a recent speech at the Bank of England Conference in London, Fed Vice Chair Lael Brainard spoke to the opportunities that strong regulation could create in the wild west of decentralized finance, “Far from stifling innovation, strong regulatory guardrails will help enable investors and developers to build a resilient digital native financial infrastructure. Strong regulatory guardrails will help banks, payments providers, and financial technology companies (FinTechs) improve the customer experience, make settlement faster, reduce costs, and allow for rapid product improvement and customization.”
With the downsides of an unregulated environment becoming increasingly transparent, crypto could be well set up to thrive as regulations are ironed out and consumer protections are put in place. Brainard’s speech notes that currently, crypto platforms are vulnerable to deleveraging, fire sales, and contagion, but that these risks are well-known in traditional finance — as are the tools to countermand them.
This is great news for ETFs that focus on the digital economy and financial technologies, such as the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC), which could see substantial growth as the crypto space reinvents itself and the Fed begins laying down regulatory guardrails.
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