Is the worst over for digital money?

The collapse of the FTX exchange has sent the price of Bitcoin and many other cryptocurrencies plunging more than 60% this year. Companies that invest in digital assets have also been affected. Shares of the exchange Coinbase, Block - the parent company of payments company Square, Bitcoin mining companies Hive and Riot, digital bank Silvergate and software company MicroStrategy have all fallen sharply in the past month.

The question now is whether the worst is over. The sector is notorious for its volatility. Cryptocurrency investors are used to the market’s crashes and spikes.

Longtime Bitcoin enthusiasts insist this is not the first crypto winter. The market has seen major corrections in 2018, early 2020 and mid-2021. But can crypto prices and related stocks recover next year? Some are optimistic, but they say investors need to have more reasonable expectations.

“It’s clear that the industry needs to create better products,” said Hany Rashwan, CEO of cryptocurrency investment firm 21.co. “Investors had a lot of false expectations during the last bull market.”

Still, Rashwan said he was surprised the cryptocurrency market didn’t take a turn for the worse. In the most recent sell-off, Bitcoin fell more than 15% in November alone. But the cryptocurrency’s price is still hovering around $17,000 — three times what it was at the start of 2020.

“How is the price still at $17,000? That shows people are still using crypto and trying to protect their assets. The confidence is not too shaken,” Rashwan explained.

Others point to the blockchain technology behind Bitcoin and the still-solid crypto space. “We’re going to see some challenges in the near term. But we do expect things to improve eventually. There will be catalysts. Institutional adoption will increase,” said John Avery, a strategist for crypto, Web3 and capital markets at FIS.

Avery expects clearer cryptocurrency regulatory policy in 2023, which would be good for the industry.

“We always need to strike a balance between disruptive technology and protecting investor interests,” he said. “Policy doesn’t always solve all of this. But it’s important.”

Others point out that the rapid collapse of FTX will make companies that survive the event stronger. Coinbase may even benefit in the long run, despite its plummeting stock.

"The rapid failure of FTX will force the authorities to step in more strongly and tighten control over the sector. We can expect this to lead to clearer regulations for participants in the cryptocurrency market," said Fadi Massih, vice president of credit institutions at Moody's Investors Service. "This will benefit Coinbase, given its size and strong position in the sector."

However, the troubles in the cryptocurrency market also show investors that Bitcoin cannot replace the USD and fiat currencies. Cryptocurrencies are still a speculative asset and investors need to understand the risks involved.

"Cryptocurrencies are widely praised for their decentralized nature, ease of trading and low transaction fees. But even Bitcoin - the oldest cryptocurrency - is more volatile than stocks and shares, making it difficult to be a store of value," Jason Pride - Chief Investment Officer at Glenmede said in a report.

Pride also added that it would be wrong to assume that Bitcoin would hold up well in volatile stock markets. In fact, this year has proven that cryptocurrencies are not a good hedge, especially as tech stocks have tanked. This has “limited their utility as a diversification asset.”

According to VnExpress