In 2023, will regulators finally understand crypto?[Column]| coindesk JAPAN | Coindesk Japan

2023 looks to be off to a pretty auspicious start for cryptocurrencies.

The volatility of some crypto projects seems to have calmed down, at least temporarily, and we haven’t seen any devastating news in recent weeks.

Cryptocurrency prices are on the rise, and miners seem ready to put their mining equipment back to work. Individual speculators are once again watching the market voraciously.

Structural issues in the crypto-asset market

But let’s not forget the challenges that have surfaced in 2022 as the recent rally in the cryptocurrency market has been misled.

ZK Zheng, CEO of crypto hedge fund ZX Squared, said many of the crypto market’s structural challenges are still intact.

“2023, especially in the first half, is going to be tougher for investors as[the Fed]continues its hawkish policy and continues to raise interest rates to combat inflation.”

“The current bear market will end when the Fed ends its rate hikes and there is no leverage left in the crypto asset market. including liabilities related to

Development of regulatory framework

Some of last year’s notable developments may help set the course for this year. The failures of FTX and Three Arrows Capital are among them, as is government efforts to create a regulatory framework for digital assets in the financial industry.

Combined with the spectacular bankruptcies and crashes in the digital asset sector in 2022, and the growing link between crypto assets and the traditional financial system, 2023 is the year that regulators will need to play a more central role. Mr. Chen thinks it might be.

“For a new bull market to start, the regulatory framework needs to be further established and clarified,” Chen said.

“In order not to repeat failures like Terra and FTX, we need to ensure that regulatory audits and transparency are provided, that stablecoins are fully collateralized, and that centralized exchanges (CeFi) have sufficient assets. This will include measures to address counterparty credit risk, which was at the heart of the domino toppling during the ‘crypto winter’,” he continued.

Focusing on regulations at the Davos meeting

Nigel Green, CEO of deVere Group, one of the world’s largest asset managers, agrees.

At the World Economic Forum (WEF) Annual Meeting (Davos) in Switzerland, Green called on world leaders to address the issue of cryptocurrency regulation.

“Regulatory development cannot be just lip service. , has failed miserably,” Green said.

Green gave three reasons why world leaders need to take crypto regulation seriously.

1. Growing Role of Crypto-Assets in the Financial System
2. Need for greater supervision to protect investors following the failures of Three Arrows Capital and FTX
3. The Importance of Economic Promotion in Emerging Countries

Green believes the regulatory framework must strike a balance between protecting investors and the financial system, the decentralized nature of digital assets, and the need for freedom to innovate.

Is the bearish cycle over?

He also touched on the rebound in cryptocurrency prices, noting that the “crypto winter” appears to be thawing.

“Crypto markets are not, of course, linear. It’s the same for all markets.

Mr. Chen also believes regulatory clarity is needed for a long-term recovery in investor positivity.

“Crypto markets cycle back and forth,” Chen said.

“This time will be no different than the last three extreme bear market cycles in Bitcoin’s short 14-year history. Crypto markets, like all financial markets, are driven by fear and greed. Bitcoin’s long-term theme remains alive and well, and crypto investor confidence will return when the market is better regulated towards institutional investors.”

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: 2023: The Year Regulators Finally Grasp Crypto?