The recent collapse of Virgin Islands-registered cryptocurrency hedge fund Three Arrows Capital proved to be one of the most dramatic local impacts of the massive sell-off that has been called a “crypto winter.”
The situation has made many investors panicky, but some experts at a recent BVI Finance panel said the crash could point the way toward a more sophisticated local market, offer an opportunity for regulators to catch up, and provide the opportunity for the development of new products and platforms.
Henry Chong, CEO of the digital crypto exchange Fusang Exchange, was one of the speakers at the June webinar, which was sponsored by Fusang and BVI Finance.
“I think that this is going to impact the digital asset industry extremely negatively, but I think it’s going to be the best thing that can happen to the digital asset industry,” said Mr. Chong, whose exchange was recognised by the Financial Services Commission in March as part of a push to allow VI-registered companies to issue and ex- change digital assets and to encourage more innovation in financial technology.
However, digital assets have had a difficult year. The price of Bitcoin — a leading crypto token — plummeted more than 70 percent from its November high of about $68,000 in June, and it has recovered only slightly since then.
Mr. Chong, however, said Bitcoin is no longer considered a purely speculative investment.
The token, he added, “has a real-use case. People can and already use it as a store of value and a medium of exchange.”
Coins with smaller market capitalisation than Bitcoin remain on shakier ground, though, he said, adding that a reckoning may come soon.
“This crypto winter is going to help clear out a lot of projects the way that the 2001 bubble burst did for the internet sector,” he said. “Then we can refocus on the original point of blockchain technology. What was the real-use case we were supposed to be delivering on?”
Frederick Fung, chairman of the Association of Cryptocurrency Enterprises and Startups Singapore, also spoke during the forum.
He warned that the crypto winter is probably just getting started and that the industry should prepare.
“We’ve seen a lot of forced liquidations; there are a lot of people who are also over-leveraged,” he said. “While all these liquidations are happening, we’re looking at this from a wake-up call or back-to-basics fundamentals.”
He added that the crash presents an opportunity to think beyond Bitcoin and its cousins and embrace the so-called “Crypto 2.0” era, a period of focus on wider applications of blockchain technology and decentralised finance with more relevance to people’s lives and the wider economy.
Crypto and the market
Deon Vanterpool, vice president of the Bank of Asia, said that plummeting crypto prices go hand in hand with an increase in global interest rates.
“The traditional market is taking quite a bit of impact based on the global market factors that are taking place, with geopolitical [events], interest rate hikes, and various factors,” he said. “Crypto and digital assets are quickly be- coming mainstream and are part of the future of the markets globally. So I am happy to see that trend from where we sit, and it strengthens our value proposition as Bank of Asia.”
Jeffrey Kirk, managing partner at Appleby’s VI office, said the increased correlation between crypto and traditional markets shows that crypto investors can no longer isolate themselves.
“For all the talk about asset classes that are decoupled from the market that was taught years ago, … there is very little that is truly decoupled from the market,” he said. “And we’re all interacting.”
Mr. Kirk also suggested that the crypto winter should be a “learning process” for regulators in the VI and elsewhere.
“This is going to take time for the regulators to take stock, see what’s going on, and then look at how they can better manage these assets and markets,” he said.
The panel was a part of the Unlocking Corporate Value via Tokenisation webinar, streamed live to more than 200 registrants from over 27 countries and territories, which besides the VI included Singapore, Malaysia, Hong Kong and the United Kingdom, according to BVI Finance.