Confidence after the fall of FTX Crypto is not an easy task

More staggering since the fall of FTX cryptocurrency, the prospects for cryptocurrencies in 2023 are many shakier but in 2022.

Last year at this time, cryptocurrencies were poised — and priced — to take over the world.

As macro headwinds weigh on consumers and implosions of over-indebtedness mark the sector landscape, industry watchers are openly questioning whether cryptocurrency even provides the inflation protection it once promised.

In January 2022, cryptocurrencies were on such a meteoric rise that so-called “memecoins” like Dogecoin were on the rise mocked into usability. As we enter 2023, the fundamental premise of cryptocurrencies usability subsequently found itself the focus of mockery and mockery.

A number of executives told PYMNTS that 2022 will be the year people start using Bitcoin and other cryptocurrencies to mainstream payments and purchases.

Today, that window of opportunity is closing, and the road to mass adoption of crypto as a payment method is increasingly looking bumpy.

What industry leaders and academics are saying now

“It’s definitely a different time for crypto,” Mary Ruppertchief compliance officer Zero Hash said PYMNTS. “The enthusiasm is still there, but recent events have made people cautious about things like internal controls, governance and making sure your business is functioning as a mature business.”

The crypto industry is as young as most of it the founders, and how these early days of the Wild West era come under stronger regulatory microscopethe importance of internal compliance controls in establishing wider consumer trust comes to the fore.

“What I find amazing about all of this,” Ron Kruszewskithe president and CEO of Stifel told PYMNTS earlier this month, “I have yet to see crypto leaders come out and say ‘we separate our clients’ funds and our clients’ securities.’ Until I can say no to that, the industry is not going to move forward. It has to be, ‘Give me your money, I promise I’ll give it back.'”

Stifel’s Kruszewski is the single longest-serving CEO at any of the major investment banks, and has led the public financial services firm for nearly twice as long as the fledgling crypto industry.

One of the most critical failures in FTX saga there was a striking lack of “common sense internal controls” across the group of companies, according to the bankruptcy filings.

Some executives see fraud in the industry as less endemic to crypto and more isolated incidents that present dirty bathwater, so to speak, more than they do.

“The background for me is that the whole world of finance has obviously taken a correction, driven largely by high interest rates,” Michael GronagerCEO and co-founder of a blockchain intelligence company Chain analysis he told PYMNTS. “A lot of companies, including Facebook, Netflix, actually have performed worse than the average [actor in the] crypto space … I don’t think that when we look at crypto in ten years, we will consider FTX a failure at all.”

Regulatory gambling

“Cryptocurrency did not invent excessive leverage, it did not invent poor risk management; cryptocurrency didn’t invent bad internal controls,” Misha Graboifinancial director in Chia The network, emphasized in the past interview with PYMNTs. “But what started out as a hugely promising set of technologies to provide an essentially transactional and custodial infrastructure … ended up turning into a gigantic casino.”

New York University Leonard N. Stern School of Business Hanna Halaburda said PYMNTS in November that if the industry is to mature, it is important to find out if there is “something special about crypto [retail investors] get more rope [than with other investment opportunities.] … I think voluntary compliance is a bigger issue [existing] regulation can contribute a lot.”

Read more: Pulse Check of Capitol Hill’s plans to regulate the crypto market

“The U.S. has the most sophisticated, deepest and fairest markets in the world because we’ve put good rules and regulations in place, and we need to do that for crypto,” Stifel’s Kruszewski told PYMNTS separately. Adding, “then crypto can flourish and [consumers can] enjoy its real business applications versus where it stands now, unregulated, just a casino.”

Next summer-into-autumn flushing cryptocurrency exchanges and hedge funds like Three Arrows Capital and FTX, even stablecoins like TerraUSD, crypto faces ever-important regulatory and perception challenges.

“Although it is possible to introduce a system of safeguards into the new regulatory framework, it is extremely difficult to correct and extremely difficult to implement because the sphere of digital assets is so dynamic and dependent on technology — and technology moves much faster than regulators can do,” law professor Saule T. Omarova said PYMNTS in November 2022.

Block chain blocks

“It’s scary that what happened happened,” Stephen Pair, CEO of the blockchain payments processor BitPay said PYMNTs ua recent interview which touched on the collapse of FTX. “That it was allowed to happen. But nothing has changed about the underlying infrastructure or architecture of Bitcoin or other blockchains. As we move forward, it is my opinion that we will see the decentralized technology that underpins the blockchain industry help create new foundations for building more secure systems.”

As companies expand, they often encounter new regulations and business controls, including those that affect payments.

“I think with recent events there might be a bit more of a ‘monkey see, monkey do’ situation [the adoption of crypto payments],” Gary A. Vecchiarelli, CPA, CFO on CleanSpark added in separate discussion with PYMNTS. “People will wait for someone else to do it first.”

While the “get rich quick” hype that once surrounded cryptocurrencies has died down, 2023 could be the year that the underlying blockchain technology emerges from that volatile shadow and finds its own viable use case and way to shine.

For all PYMNTS crypto coverage, subscribe to the daily Crypto Newsletter.

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